Carter v Mackey Motels Pty Ltd [2023] QSC 128 [2023] 26 QLR

SUPREME COURT OF QUEENSLAND CITATION: Carter v Mackey Motels Pty Ltd [2023] QSC 128 PARTIES: GARY JOHN CARTER AND WENDY MAREE KLEIN- CARTER AS TRUSTEES FOR THE CARTER FAMILY TRUST (plaintiffs) v MACKEY MOTELS PTY LTD (defendant) FILE NO: 7 of 2016 DIVISION: Trial PROCEEDING: Trial ORIGINATING COURT: Supreme Court DELIVERED ON: 22 June 2023 DELIVERED AT: Brisbane HEARING DATES: 23, 24, 27, 28 February, 1, 2, 6, 7 March and 20 April 2023. Further written submissions were received from the plaintiffs on 27 April 2023 JUDGE: Freeburn J ORDERS: 1. The plaintiffs’ claims are dismissed. 2. The defendant is entitled to judgment on the counterclaim in the sum of $7,016.13 plus interest (to be calculated). 3. I will hear the parties on the form of the orders (including the calculation of interest) and costs. CATCHWORDS: PROPERTY LAW – LEASE – INSURANCE – OUTGOINGS – where the plaintiffs were the lessees of a motel – where the plaintiffs dispute their obligation to pay insurance premiums as ‘outgoings’ under the lease – where it is argued that having the insurance policy under the sole name of the defendant is in breach of the lease – where the defendant has a counterclaim for the outstanding outgoings – whether the defendant obtained insurance which was substantially different to insurances held by the landlord prior to the commencement of lease – whether the higher cost of the insurance policy makes the policy substantially different to insurances held by the landlord prior to the commencement -- 1 of 56 -- 2 PROPERTY LAW – LEASE – MAINTENANCE AND REPAIR – where the plaintiffs had an obligation to keep the motel in good and substantial repair as a high quality motel – where the plaintiffs argue that the defendant had an obligation under the lease to keep the motel and landlord’s property in good and substantial repair – where the defendant’s actual obligation under the lease was to take reasonable action to ensure that the motel and landlord’s property is in good and substantial structural state and condition – whether the defendant was required under the lease to expend on capital works – whether the defendant was in breach of the lease because of the failure to expend on capital works – whether there is evidence of structural damage to the motel PROPERTY LAW – LEASE – REPUDIATION – TRESPASS – where the plaintiffs failed to pay rent – where failure to pay rent was an essential term of the lease – where a notice to remedy breach of covenant was not complied with by the plaintiffs and QCAT proceedings were initiated by the defendant – where the plaintiffs allege that the conduct of the defendants was a repudiation of the lease – where the plaintiffs allege that the defendants entered the motel without consent – where the defendant diverts the phone line of the motel after the plaintiffs were required to deliver up possession – whether the plaintiffs were given a reasonable time to comply with the notice to remedy breach of covenant – whether there is sufficient evidence to demonstrate repudiation – whether there is sufficient evidence to establish the cause of action of trespass – whether there is a discernible cause of action in the plaintiffs’ pleadings concerning the diversion of the phone line PROPERTY LAW – LEASE – LOSS OF PROFITS – where the plaintiffs plead that the breaches of the lease have caused them loss – where the plaintiffs plead that the loss of opportunity to exercise the option caused a loss in future profits – whether there is evidence that the alleged breaches caused loss – whether the plaintiffs would have exercised the option but for the alleged breaches of lease PROPERTY LAW – LEASE – CHATTELS – where the lease provided for a compulsory purchase of the chattels contained in an annexed inventory to the lease upon termination of the lease – where the value of the chattels is not agreed – whether a compulsory purchase was still required by the lease in absence of the annexed inventory Authorities Limitations of Actions Act 1974 (Qld) s 10 Property Law Act 1974 (Qld) s 124, 126, 131 -- 2 of 56 -- 3 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Delaney v T P Smith Limited [1946] KB 393 DTS Succession Pty Ltd v Survco Pty Ltd [2021] QSC 283 Grainger v Williams [2005] WASC 286 Hawkins v Clayton (1988) 164 CLR 539 Holus Bolus Pty Ltd v Wicko Pty Ltd [2012] NSWSC 497 Hookey & Anor v Whitelaw & Ors [2020] QSC 63 Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 Lewis v Australian Capital Territory (2020) 271 CLR 192 Manren Ltd v Royal & Sun Alliance Insurance Australia Ltd (2003) 12 ANZ Ins Cases 61-568 Narni Pty Ltd v National Australia Bank Limited [2001] VSCA 31 New South Wales v Banabelle (2002) 54 NSWLR 503 Pagano v Cama (1995) NSW Conv R 55-755 Plenty v Dillon (1991) 171 CLR 635 Robinson v Young [2005] NSWSC 777 Spectra Pty Ltd v Pindari [1974] 2 NSWLR 617 at 620-621 Speets Investment Pty Ltd v Bencol Pty Ltd [2020] QCA 247 Steak Plains Olive Farm Pty Ltd v Australian Executor Trustees Limited [2015] NSWSC 289 SDW2 Pty ltd v JLF Corporation Pty Ltd [2017] QSC 1 TCN Channel Nine Pty Ltd v Ilvariy Pty Ltd [2008] NSWCA 9 Vural Ltd v Security Archives Ltd (1989) 60 P & Cr 258 at 273 COUNSEL: Mr DJ Kelly (plaintiffs) Mr D Piggott KC and Mr M Windsor (defendant) SOLICITORS: William Roberts Lawyers for the plaintiffs Baker O’Brien & Toll for the defendant -- 3 of 56 -- 4 REASONS PART A: BACKGROUND [1] The Oscar Motel is a 3.5-star motel complex at 252 Bourbong Street at Bundaberg West (the Motel). The complex includes three buildings: (a) Block A contains guest rooms 1-12, an office, a commercial kitchen, a guest laundry, and a linen storage room; (b) Block B contains guest rooms 14-23 and a linen storage; and (c) a residence which is a two-bedroom house, sometimes called ‘Oscar House’. The complex also includes undercover carparking, a swimming pool and barbeque area, and a lawn.1 [2] The plaintiffs, Mr Carter and Ms Klein-Carter, as trustees for the Carter Family Trust, (the Carters), were the lessees of the Oscar Motel from 16 April 2002 until they vacated the Motel on 5 October 2016.2 [3] The defendant, Mackey Motels Pty Ltd (Mackey Motels), became the registered owner of the Oscar Motel in December 2007. As a consequence, it also became the landlord under the registered lease (the Lease). [4] Over a significant period of time there was a souring of the relationship between the Carters and Mackey Motels. From 2011 onwards there were disputes about the Carters’ obligations to pay, as ‘outgoings’ under the Lease, insurance premiums that had been paid by Mackey Motels. Over roughly the same period there were disputes about Mackey Motels’ obligation to maintain and repair. Eventually the Carters refused or failed to pay rent. [5] The disputes came to a head in May 2015, and again in May 2016, when the Carters did not pay outgoings due and payable under the Lease for insurance premiums paid by Mackey Motels. On 4 May 2016 and 1 June 2016, Mackey Motels served on the Carters notices to remedy breach of covenant for those failures to pay outgoings.3 The Carters did not pay the outstanding outgoings. [6] On 16 July 2016, the Carters did not pay the rent which was due and payable under the Lease. Ms Klein-Carter explains the decision not to pay the rent in this way: “If we had adjusted our short-term priorities, we could have made the rent payment for July 2016, but we took the view that a dispute over payment of rent and the Court action we were about to commence might cause the Defendant to deal with us properly and start doing repairs and other outstanding works at the Motel. We had always paid rent and outgoings up to that time, so the Defendant had not been 1 Affidavit of Scott Mackey sworn 7 November 2022 at [12] to [14]. 2 I will put aside for the moment the contractual status of the Carters at the end of the lease. 3 A notice to remedy covenant is required as a prerequisite to a right to terminate or re-enter: see s 124 of the Property Law Act 1974. -- 4 of 56 -- 5 impacted by the decline in revenues of the Motel. We hoped that holding back the rent and serving Court process might get results, as nothing else had worked for us up to that point.” 4 [7] Mr Carter’s explanation for the decision is as follows: “… We considered holding back rent as a short-term tactic while we pursued relief in court, and that the problem of meeting rent thereafter would be something which we would readily overcome if we were able to get on with running the Motel. To deal with putting things in order we needed some time to put our minds to the legal process (of seeking relief due to the Defendant’s breaches) while still running the Motel. We also discussed the prospect that holding back rent may lead to a positive response by the Defendant in dealing with us and by starting to make improvements to the Motel …”5 [8] Mackey Motels contend that the Carters’ decision not to pay rent was a tactical decision to hold back the rent while at the same time commencing this proceeding against Mackey Motels. As Ms Klein-Carter explained it in her evidence, the Carters hoped to hit Mackey Motels “in the hip pocket” so as to drive Mackey Motels to the negotiating table.6 Instead, the tactic drove Mackey Motels, or at least its lawyers, to the bar table. Both parties have been engaged in litigation since July 2016. Procedural History [9] On 25 July 2016, Mackey Motels served a notice to remedy breach of covenant for the failure to pay the rent. The rent remained unpaid. [10] On 29 July 2016, Mackey Motels commenced a proceeding in QCAT seeking orders for payment of the outstanding rent. On 9 August 2016, the Carters commenced this proceeding seeking relief from all breach notices and relief from their obligation to pay rent. In response, Mackey Motels made an interlocutory application in this court for possession of the Oscar Motel. That application was to be heard on 7 October 2016. [11] However, in the meantime, on 5 October 2016, the Carters gave up possession of the Oscar Motel. They appeared for themselves at the hearing on 7 October 2016 before Burns J. Because the Carters had left the Oscar Motel, Mackey Motels did not pursue its claim for possession of the Motel. However, Mackey Motels pursued the outstanding rent. Burns J gave Mackey Motels summary judgment for the two months of outstanding rent. That was because clause 20.1 of the Lease expressly provided that the Carters must make payments under the Lease “without set-off or counterclaim and free and clear of any withholding or deduction”. The Issues [12] The Carters’ claims broadly cover the topics of insurance, the condition of the building, the events leading to their leaving the Oscar Motel, a claim for the value of the chattels left at the premises on 5 October 2016, and a loss of profits claim. In 4 Affidavit of Wendy Klein-Carter sworn 12 September 2022 at [79]. 5 Affidavit of Gary Carter sworn 13 September 2022 at [38]. 6 Transcript Day 3 page 46 at line 5. -- 5 of 56 -- 6 broad terms, the Carters claim that their eviction from the Oscar Motel was high- handed and a repudiation of the lease and caused the loss of profits of approximately $2 million. [13] Each broad area of dispute will be considered below. In each case it will be necessary to examine the pleadings, the relevant provisions of the Lease and the facts. The pleadings were amended during the course of the trial. In each case, the references to each parties’ pleading are a reference to the latest version of that pleading. PART B: INSURANCE ISSUES The Carters’ Insurance Obligation [14] The Lease has a number of provisions that address insurance. Clause 13.1 provides that, as tenants, the Carters must maintain the following insurances with insurers approved by the landlord (which approval may not be unreasonably withheld). These insurances are required to be in the names of the Carters and the landlord, for their respective rights and interests. The insurances required to be effected by the tenant are: (a) public risk insurance; (b) plate glass insurance; (c) other insurances in the connection with the Motel which, in the reasonable opinion of the landlord, a prudent tenant leasing comparable premises would take out; and (d) other insurances required by the landlord in connection with works carried out by the Carters under clause 12.7 or procure the contractors to do so. [15] There is no dispute that the Carters’ discharged their obligations under that clause. [16] However, the Carters seemed to assume that clause 13.1 imposed obligations on Mackey Motels as the landlord. In particular, the Carters adopted the stance that all insurances must be in their name or, at least in the names of both landlord and tenant. Clause 13.1 cannot be read that way. It cannot be read as if it were blended with clause 5.2.7 Clause 13.1 imposes obligations on the tenant to take out certain specific types of insurance. Naturally enough, the specific tenant insurances specified in clause 13.1 do not include building insurance. That was the province of the landlord, who could seek reimbursement under clause 5.2 (discussed below).8 The Outgoings Clause [17] The insurance disputes centred around the outgoings clause. Clause 5.1 provides that: “The Tenant must pay the Landlord the Outgoings at the times and in the manner set out in clause 5.2.” Clause 5.2 defines ‘Outgoings’: The Outgoings are the total of all costs paid, charged or otherwise incurred by the Landlord in and about the ownership of the Motel comprising: – 7 That seems to be the Carter’s approach: GJC.001.001.0340. 8 This was explained to the Carters by Mackey Motels in an email dated 28 April 2011; MAC.001.001.0193. -- 6 of 56 -- 7 (a) rates, taxes, charges and other levies payable to a Competent Authority for the Motel; (b) insurance premiums and other charges in connection with insurance cover against insurable risks which the Landlord reasonably considers are appropriate for the Motel, the Landlord’s Property, persons in the Motel for any reason, the Tenant’s Business and this Lease provided always that the insurances required by the Landlord pursuant to this sub- clause shall not be substantially different to the insurances held by the Landlord immediately prior to the commencement of this Lease…[emphasis added] [18] Thus, the tenant was obliged to pay the landlord’s ‘Outgoings’, a concept that includes those insurances which the landlord considers are reasonably necessary and comprise insurance cover for five specified categories of risk: the Motel, the Landlord’s Property, persons in the Motel for any reason, the Tenant’s Business and this Lease. The proviso at the end of the clause restricts the landlord to those insurances, in those five categories, that are not substantially different to the insurances that the landlord held prior to the commencement of the lease on 16 April 2002. The Contentions about the Outgoings [19] The Carters rely on the proviso at the end of clause 5.2(b). Paragraph 6 of the statement of claim9 is as follows: From in or about May 2011 the defendant obtained insurance on a substantially different basis to the required insurances in that the building insurance, previously held in the names of the plaintiffs and the defendant for their respective rights and interests, was obtained in the defendant’s name only at a higher cost for insurances than the cost of required insurances. [20] It can be seen that the Carters’ complaint is that the 2011 Mackey Motels policy was in the name of Mackey Motels only, in circumstances where the same insurance was “previously held” in the name of both parties.10 The obvious problem with that complaint is that the comparison is with ‘previous insurances’ taken out by Mackey Motels rather than, as clause 5.2(b) requires, “the insurances held by the Landlord immediately prior to the commencement of this Lease”. It is common ground that the policy that was in existence prior to the commencement of the Lease on 16 April 2002 was a policy held by the previous owners and operators of the Motel, namely Paul and Joyce Galea, trading as Oscar Motel (the Galea Policy). Therefore, any complaint under clause 5.2 must be that the insurance obtained by Mackey Motels in 2011 was substantially different from the Galea Policy. 9 For convenience, in these reasons I refer to the latest version of the statement of claim (the version filed by leave on 28 February 2023) as the ‘statement of claim’. On Day 3 of the trial leave to file a version that included a fraud allegation was refused (Transcript Day 3 page 89) with reasons delivered on Day 4 (Transcript Day 4 page 2, 3). 10 See, in particular, paragraph [31] of the Plaintiffs’ submissions: “That position prevailed from May 2011 onwards because of the Defendant’s unilateral decision to change the arrangements for taking out of insurance from what had been in place since the commencement of the Lease…”. -- 7 of 56 -- 8 [21] Mr DJ Kelly, counsel for the Carters, made a similar submission in his written submissions. There, he submitted that the fact that the building insurance was in the name of the landlords, Mackey Motels, and only in Mackey Motels’ name, was a breach of clause 5.2(b). His submissions were put strongly: …from in about May 2011 the Defendant obtained insurances on a substantially different basis. For reasons only explained at the time to be on the basis of the changes being “superior” (GJC.001.001.0768) in terms of insurance coverage in favour of the Defendant, from 2011 onwards the Defendant failed, refused or neglected to comply with the terms of the Lease in that it acquired building insurance separately in the Defendant’s name only and at a higher cost than the cost of required insurances available at that time. The approach taken by the Defendant in 2011 onwards was taken with no regard for, and actual disregard of, the Plaintiffs’ insurable interests and related rights pursuant to the Lease.11 [emphasis added] [22] And so, the Carters’ contention in their submissions is that the two substantial differences were that the building insurance was acquired by Mackey Motels in their name only and at a higher cost than was available at the time. Putting aside for the moment the ‘higher cost’ issue, the problem is that the Carters make no comparison with the Galea Policy. [23] Mr D Piggott KC, who led Mr M Windsor for Mackey Motels, made this submission in reply: the Plaintiffs’ complaints [are] that the premiums were for policies which were “substantially different” to the Galea Policy because they were “obtained in the defendant’s name only …”. Given the Galea Policy was also in the name of the registered owners only, that aspect of the Plaintiff’s complaint must fail…12 [24] In fact, as explained, the Carters’ pleading, and its submissions, do not compare the Mackey Motels policy with the Galea Policy. The statement of claim compares the 2011 insurance policy to the rather nebulous concept of “previous” insurance.13 The submissions complain of the acquisition of building insurance separately in the Mackey Motel’s name only – without making any comparison or saying why that is a breach of the Lease. [25] In my view, the Carters can only establish a breach of clause 5.2(b) of the Lease if they can establish, by evidence, that the 2011 Mackey Motels policy is substantially different from the Galea Policy. [26] Incidentally, contrary to the Mackey Motels’ submissions, it is not clear from the evidence that the Galea Policy can be characterised as a policy in the name of the registered owners only. Immediately before they entered into the Lease with the Carters, Mr and Ms Galea were both the owners and the operators of the Motel. The Galeas’ possessed composite insurable interests because they were the owners of the land and buildings as well as the operators of the motel business. 11 Plaintiffs’ submissions at [27]. 12 Defendant’s submissions at [208]. 13 The expression ‘previous insurance’ could refer to Mackey Motels previous policies or it could refer to the Galea policy. -- 8 of 56 -- 9 The Galea Policy [27] What insurable interests did the Galeas insure? It is impossible to say. The policy wording for the Galea Policy is not in evidence. Only the certificate of insurance for the Galea Policy is in evidence. That certificate lists the insurances by means of short labels such as the building of the Motel, contents of the Motel (with a handwritten addition for ‘House Cover’ which may be building insurance for the residence), burglary/theft, money, glass and liability.14 From those descriptions, the nature of that insurance appears to be directed to both the Galea’s interests as owners (e.g. building insurance) as well as operators of the motel (e.g. burglary/theft, money, glass and liability).15 However, it is impossible to tell what insurance is actually effected without seeing the policy wording. Labels are an inadequate guide to the terms and conditions of the Galea Policy. [28] And so, the insurance certificate suggests that the Galea Policy was a composite policy, insuring both the Galea’s ownership interests and its operator interests. However, the insurance certificate, on its own, does not enable the court to form any conclusions about the nature of the cover. [29] It follows that the major problem with the claim by the Carters that Mackey Motels breached clause 5.2(b) of the Lease is that is that it is impossible to conclude that the 2011 policy arranged by Mackey Motels was substantially different to the Galea Policy because the terms of the Galea Policy are not in evidence. [30] There is no sensible way to compare the Galea policy against the policies that Mackey Motels obtained from May 2011 onwards. It is impossible to compare the rather spare certificate of insurance evidencing the existence of the Galea Policy against a series of policies that Mackey Motels obtained. Of course, if the terms of both the Galea and Mackey Motels policies were in evidence, it may have been useful for the Carters to have adduced the evidence of an insurance broker, or another insurance expert, showing the substantive differences in cover. No such evidence was sought to be tendered. A Policy in the Name of Mackey Motels Only [31] The Carters argue that the fact that Mackey Motels acquired building insurance separately, in Mackey Motel’s name only, constitutes a substantive difference to the cover afforded by the Galea Policy. However, again, it is impossible to make the necessary comparison. It is true that the Galea Policy was in the Galeas’ name only, but they were both the owners and the operators of the motel business. In that sense, as explained, the Galea Policy is likely to have been a composite policy, insuring the Galeas in both their roles. [32] Does that make the Mackey Motels insurance policies taken out after 2011, in the name of Mackey Motels only, substantially different from the Galea Policy? I do not think it does. 14 Ex 1: GJC.001.001.0001. 15 Some of these, such as glass and liability, might be insurances for the benefit of both the owner and the operator. -- 9 of 56 -- 10 [33] First, clause 5.2(b) of the Lease contemplates that the insurance will be taken out by the landlord, that is, Mackey Motels. The Carters claimed to the contrary. They claimed that they were entitled to be an insured.16 Clause 5.2(b) does not require that. The point of clause 5.2(b) is that the landlord has some measure of discretion as to the insurances which it, that is the landlord, reasonably considers are appropriate. The objective of the provision is for the tenant to reimburse the landlord for those insurances which are reasonably required by the landlord. [34] Nothing in clause 5.2(b) obliges the landlord to take out insurance in the name of the tenant, or in joint names of landlord and tenant. The insurance premiums are those that are “incurred by the Landlord” for the insurances the landlord considers appropriate. But those premiums paid or incurred by the landlord are to be reimbursed by the tenant. In the same way that clause 5.2(a) requires the tenant to reimburse the landlord for rates, taxes, charges and other levies paid or payable for the motel, clause 5.2(b) requires the tenant to reimburse the landlord for the insurance the landlord pays for the motel. [35] The contrast is with clause 13.1 of the Lease which obliges the tenant to take out specific listed categories of insurance policies, and to do so in the names of both the tenant and the landlord. Therefore, it is a mistake to interpret clause 5.2(b) as requiring the insurance to be taken out in the name of the tenant, or even jointly by landlord and tenant. [36] Second, it is common that entity B can be insured under a policy taken out by entity A. Indeed, the Lease itself recognises that potential.17 That means that, even though the policies may have been taken out by Mackey Motels, and in the name of Mackey Motels, those policies may provide some insurance cover for the Carters. The problem, once again, is that there is no ability to make a proper comparison of the cover afforded by the Galea Policy, as against the cover afforded by the Mackey Motels policies. [37] Therefore, the fact that the policy is not in the name of the landlord and the tenant has not been shown to be a substantially different insurance from the Galea Policy. What the Galea Policy covered is not known because its terms and conditions are not in evidence. [38] Third, assessing what is ‘substantially different’ under clause 5.2(b) must involve an assessment of the character of the differential feature. Here the Carters contend that the differential feature is that the Mackey Motels policies are in the name of the landlord. But that is what clause 5.2(b) contemplates. Clause 5.2(b) identifies the insurance to be taken out as “insurable risks which the Landlord reasonably considers are appropriate for the Motel, the Landlord’s Property (etc)”. And so, the Lease itself envisages that the insurance will be taken out by the landlord. It can hardly be substantially different for the Mackey Motels insurance policies to conform to the requirements of the Lease. 16 For the moment, I am going to put aside the difficulty that an insured might not be the person or entity who takes out the policy of insurance. That issue is discussed below. 17 See clause 13.7 and 13.8 of the Lease. Insurance covering construction sites, for example, may be taken out by the contractor but commonly provides insurance cover for the principal, subcontractors and others. -- 10 of 56 -- 11 [39] For those reasons, the Carters have not established by evidence that the fact that the insurance policies were taken out in the name of Mackey Motels only, makes those policies substantially different from the Galea Policy. Another Substantive Difference – Higher Cost? [40] The Carters contend that another substantial difference between the Galea policy and the Mackey Motels policies after 2011 is the higher cost of the Mackey Motels policies. [41] The Lease specifies that “the insurances required by the Landlord” are not to be substantially different to the insurances held by the Landlord under the Galea policy. Applying the ordinary and literal meaning of the words of the Lease, it can be seen that the requirement is focussed on “the insurances” and not on the cost of those insurances. It would be difficult to read the clause as if it read “the insurances and the cost of the insurances” are not to be substantially different from the pre-existing policy. Such an implication is not necessary to give business efficacy to the Lease.18 To the contrary, the parties are likely to have appreciated that the price for insurance cover might fluctuate over time and that it would be unrealistic to commit the landlord to insurances in any particular price bracket. [42] In any event, no evidence justifies the conclusion that the price paid for the insurance in 2011 made the 2011 policy substantially different from the Galea policy. No evidence was tendered as to what policies were available in the market in 2011 which comprised equivalents to the Galea policy, and at what premiums. Without proper evidence, it is unremarkable that the premium paid for a policy obtained in 2011 will be more expensive than the premium for an equivalent policy obtained nine years earlier. The Outgoings Battles in 2011 & 2012 [43] The Carters’ pleading identifies how the arguments about outgoings progressed. On 27 April 2011 Mackey Motels issued an invoice claiming $4,283 for building insurance. That amount was not paid and so on 5 October 2011 Mackey Motels issued a notice to remedy breach of covenant for the $4,283 plus $215.91 for interest and $600.50 for solicitors’ costs. The sums were paid. [44] A year later, on 26 April 2012, Mackey Motels issued an invoice claiming $4,200 for the 2012-2013 building insurance. The Carters say that they paid that invoice under protest in that, by a letter dated 4 May 2012, they demanded the refund of the amounts paid for the two annual premiums as well as interest and solicitors’ costs. The Carters say that Mackey Motels refused to refund those sums. [45] For the reasons explained, Mackey Motels was entitled to demand the 2011 and 2012 premiums under clause 5.2(b). The proviso was not triggered because the Mackey Motels insurance policies have not been shown by the evidence to be substantially different from the Galea Policy. 18 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337. -- 11 of 56 -- 12 [46] Even if all of that were wrong, any claim based on the 2011 and 2012 premiums is statute-barred.19 The claims for breach of contract based on those premiums were added in 2019 and 2022. The Outgoings Battles in 2015 [47] Whilst the Carters made complaints about the 2013 and 2014 outgoings claims for a CGU Padlock insurance policy, the outgoings were paid. [48] In May 2015 Mackey Motels obtained a CGU Padlock policy for the Motel at a premium of $4,500. The Carters contended that this policy is substantially different from the Galea policy in that it was obtained in the name of Mackey Motels only, and at a higher cost. Again, there is a lack of evidence which demonstrates that the CGU Padlock policy is substantially different to the Galea policy. [49] The Carters say that in April 2015 they became aware of another insurance policy offered by CGU, a Business Policy which was similar to the Galea Policy, but the premiums were $677 a year cheaper than the CGU Padlock policy. The Carters say that by emails on 4 and 13 May and 4 June 2015 they provided Mackey Motels with the quote for the CGU Business policy that was both compliant with the Lease and a cheaper insurance policy. They complain that Mackey Motels opted to stay with the more expensive policy on the basis that the CGU Padlock policy was “the superior policy coverage wise.”20 [50] Again, the policy terms and wording are not in evidence for the Galea policy or the CGU policies. There is no evidence, for example, from a broker that compares the Galea and CGU policies. The other problem is that clause 5.2 preserves to the Landlord a right to effect “insurance cover against insurable risks which the Landlord reasonably considers are appropriate”. Mackey Motels was entitled to choose insurance that it reasonably considered to be appropriate. The only restriction was that the choice was required to be reasonable. No evidence demonstrates that the choice of the CGU Padlock policy was unreasonable. [51] There are some differences in the insurance cover afforded by the CGU Padlock policy as against the cover of the Galea policy. For example, the CGU Padlock policy provided cover for ‘rewriting of records’ but the Galea policy did not.21 However, it may be that this cover was merely incidental to the building cover. Or it may be that this type of cover became standard. Or it may be that the equivalent policies available in the insurance market altered. Certainly, the types of policies available in the market, and the cover afforded by those policies, was unlikely to have remained static in the period from 2002, when the Galea policy was taken out, and 2015, when the CGU Padlock policy was chosen over the CGU Business policy. There is no proper evidence from which the court can conclude that the insurance cover which Mackey Motels considered appropriate was an unreasonable choice. [52] Mackey Motels was not obliged to select the cheapest policy. And the fact that the CGU Business policy was about 15% cheaper than the CGU Padlock policy does not make the choice unreasonable. 19 Limitations of Actions Act 1974 (Qld) s 10. 20 Mackey Motels email of 21 May 2015; GJC.001.001.0599. 21 Or at least the certificate did not mention any such cover. See the statement of claim at [9], [10]. -- 12 of 56 -- 13 [53] However, the Carters were confident of their position. They notified Mackey Motels that they would pay only the amount of the cheaper policy. On 4 June 2015 they paid only $3,823 of the $4,500 that was claimed. Mackey Motels were also confident. On 26 April 2016, when the policy was to be renewed again, Mackey Motels sent an email to the Carters attaching an email from their insurance brokers regarding the CGU Padlock policy and saying that the CGU policy was superior and that was why that policy would be put in place.22 [54] On 4 May 2016 Mackey Motels served a notice to remedy breach for the shortfall of $677 in the payment of the outgoings for insurance for the May 2015 premium, plus $66.42 for interest and $550 for solicitors’ fees. [55] In the meantime, on 26 April 2016, the Carters advised Mackey Motels that they had found a quote for the building insurance that met the requirements of clause 5.2 of the Lease. The quote was with AIG and the premium was $3008. Mackey Motels contests that the proposed policy with AIG met the requirements of clause 5.2 for these reasons: (a) There was no cover for theft, glass or money; (b) The policy did not cover the loss by theft of any of Mackey Motels’ property; (c) Professional fees cover was limited to $5,000 whereas the CGU Padlock policy provided unlimited cover for professional fees; (d) The cover for removal of debris was limited to $100,000 rather than $150,000; (e) The cover for government fees was limited to $10,000 rather than $25,000; (f) The AIG policy was a business pack policy rather than a policy specifically tailored for property owner insurance; (g) The AIG was not insurance cover against insurable risks which Mackey Motels reasonably considered to be appropriate. [56] The next day, on 27 April 2016, the Carters made clear that they would not be paying for the additional cost of the CGU Padlock policy. [57] On 4 May 2016 Mackey Motels provided the Carters with a tax invoice in the sum of $4,689 for the renewal of the CGU Padlock policy which included $3,786 for building insurance and public liability cover in the name of Mackey Motels only and at a premium cost of $903. On 1 June 2016 Mackey Motels served the Carters with a notice to remedy breach of covenant for the CGU Padlock policy cost ($4,689) plus interest of $37 and solicitors fees of $550. [58] The Carters complain that the CGU Padlock policy covered plate glass, albeit in the name of Mackey Motels, and the Carters took out their own glass insurance pursuant to clause 13.1(b) of the Lease. Mackey Motels agrees that plate glass is covered under the CGU Padlock policy but says that that cover satisfied the Carter’s obligation under clause 13.1(b) of the Lease. [59] That point raises a problem mentioned above. The Carters seemed to be preoccupied with the notion that the CGU policy was taken out in the name of Mackey Motels. 22 See the statement of claim at [10A] which is admitted by paragraph 10A of the defence. -- 13 of 56 -- 14 But, as mentioned, a policy taken out by A can cover B’s interests. That is particularly so where there are concurrent interests over the same property. Both Mackey Motels and the Carters had an interest in the glass. Broken glass may affect the value and worth of the building as well as the motel business. [60] In any event, the problem is the same. There is no evidence that Mackey Motels’ choice of insurance was an unreasonable choice. Insurance market evidence from an insurance broker, or other insurance expert, is conspicuous by its absence. [61] It follows that the insurance complaints made by the Carters do not comprise breaches of the Lease. Insurance Claim for Rooms 17, 18 & 19 [62] There is a further aspect to the insurance disputes that needs to be considered. Paragraph 7 of the statement of claim pleads that: Subsequent to the date pleaded in paragraph 6 hereof, no repairs were made to the Motel pursuant to any claims made under insurance, including the insurance policy in the name of the defendant only, despite: (a) an insurance claim being made by the defendant in 2011 for damage (to rooms 17, 18 and 19) due to escape of liquid; and (b) insurable damage occurring to the building (to roof, walls, ceilings and windows) on about 26 January 2013, caused by water and flood impacts (during tropical cyclone Oswald). [63] Further, Mr Kelly’s written submissions make much of an email dated 6 May 2011 in which Mackey Motels instructed the insurer that “all claims … be put on hold” and “we do not give approval for this claim to proceed at this time”. [64] The broader and “more serious issue” being raised by Mr Kelly is that “insurance claims were not dealt with by the Defendant properly and in a timely way”.23 Therefore, the submissions foreshadow a claim that Mackey Motels breached the Lease, or some other duty, by failing to prosecute, properly and expediently, the Carters’ insurance claims.24 [65] However, the failure to prosecute repairs to the motel pursuant to insurance claims is not pleaded as a breach of the Lease or any other obligation. No claim is made based on any such breach. Instead, this complaint appears to be designed as a forerunner to the claims made about the condition of the building (discussed below). [66] Mr Kelly made a further related submission: The Defendant’s breaches of the Lease included the failures to make and advance insurance claims. The Defendant as landlord was in breach of its obligation to preserve the tenant’s rights by making an insurance claim each and 23 Plaintiffs’ submissions at [37]. 24 Presumably these were insurance claims made by the Carters said to be comprehended by Mackey Motels’ insurance policy. -- 14 of 56 -- 15 every time when that was appropriate: see Vural Ltd v Security Archives Ltd,25 which articulates the concept that if the tenant (as here) must pay the insurances in relation to a property, it should follow, and must be taken to have been the intention of the parties, that the insurance should ultimately benefit both the landlord and tenant by claims being made and the funds being applied to the premises and to make good the damage as quickly as possible: cf clause 13.7 of the Lease.26 [67] As to that submission: (a) No provision of the Lease requires that the landlord “make and advance insurance claims”, or that the landlord do so on behalf of the tenant; (b) There is no reason why a tenant, whose interests are comprehended by a policy, cannot make and advance its own claims; (c) No provision of the Lease obliges that the landlord “to preserve the tenant’s rights by making an insurance claim each and every time when that was appropriate”; (d) Vural Ltd v Security Archives Ltd does not assist; in that case Knox J considered an allegation of a breach of an implied term that the landlord was obliged to present and prosecute, with all reasonable speed, a claim under the policy for all moneys receivable and/or recoverable thereunder and necessary to rebuild repair and/or reinstate the demised premises;27 here there is no plea of any such implied term; (e) The tenant’s obligation under clause 5.2 of the Lease was not to pay the insurance premium, but to reimburse the landlord for what the landlord paid or incurred for certain specific types of insurance; (f) The obligation to repair or make good any damage fell upon the tenant, except for the landlord’s obligation to take reasonable action to ensure that the Motel and the Landlord’s Property are kept in a good and substantial structural state and condition (see the discussion in Part C below); (g) Any claims made by the landlord or the tenant pursuant to an insurance policy do not alter the obligations to repair or make good; the insurance merely provides an indemnity for the costs of repair or making good; therefore, it is a mistake to assume that a claim under an insurance policy must be successfully prosecuted, and the insurance claim paid, before the carrying out of repairs, or work to make good. [68] Clause 13.7 of the Lease is referred to here, and in the subsequent paragraph of Mr Kelly’s submissions. However, that clause has not been shown to be relevant. First, clause 13.7 is predicated on there being an insurance policy taken out by the tenant under clause 13.1. Clause 13.1 requires the tenant to take out, in the joint names of the tenant and the landlord, a policy covering public risk insurance, plate glass 25 (1989) 60 P & Cr 258 at 273. 26 Plaintiffs’ submissions at [50]. 27 The lease in that case contained an express term in similar terms: “…the Landlord shall with all convenient speed apply all moneys received by virtue of the policy or policies of insurance or require the same to be laid out in rebuilding repairing and reinstating the Demised Premises…”: (1989) 60 P & Cr 258 at 260. -- 15 of 56 -- 16 insurance, other insurance which a prudent tenant would take out, and insurance cover the tenant’s works making alterations or additions to the Motel. No such policy has been identified by the Carters. [69] Second, clause 13.7 operates to quarantine of the balance of any proceeds of an insurance claim which are not required by the insurer to be applied towards the replacement or reinstatement of the thing insured. However, no responsive insurance policy has been identified, and no balance proceeds of any such policy have been identified. [70] Third, no such claim is pleaded. [71] Another, related submission made by Mr Kelly is that: The Defendant, as the insured, made a claim (WFI number 3234322) in February 2013…but did not keep the Plaintiffs informed about or take the required steps to pursue the claim, even though prompted in May 2014… Instead, the episode again demonstrates the Defendant’s casual disregard of the Plaintiff’s rights and interests… [72] And so, it is alleged that insurance claims were not dealt with by the landlord properly and in a timely way, and that the landlord was required to preserve the tenant’s rights by making an insurance claim each and every time that was appropriate, and that the landlord was obliged to keep the tenant informed about the claim, or to take the required steps to pursue the claim. But none of those obligations can be found in the express terms of the Lease and the Carters do not plead any implied terms let alone specific breaches of the implied terms. [73] This is no mere technical pleading point. Mackey Motels was entitled to be fairly informed if it was the Carters’ case that there were specific implied terms (in spite of entire agreement clause 26.1128) and that those implied terms were breached by specific conduct, and that loss and damage was caused by those breaches.29 [74] It follows that the Carters’ claim for $15,869 for recovery of the outgoings paid for insurance and interest and solicitors fees must fail. Mackey Motels Counterclaim for Outgoings [75] As explained, the Carters were obliged by clause 5.2(b) of the Lease to pay Mackey Motel’s outgoings. Those outgoings included the premiums for the 2015 and 2016 renewals of the CGU Padlock policy. [76] It follows that: (a) an order should be made giving judgment on Mackey Motels counterclaim for $677.00 for the unpaid balance of the insurance premium for the 2015 renewal of the CGU Padlock Policy and $4,689.13 for the May 2016 renewal of the CGU Padlock Policy; 28 See the later discussion of implied terms in Part C. 29 For example, it is hard to see how a failure to keep the tenant informed was causative of any loss or damage. -- 16 of 56 -- 17 (b) judgment should also be given on Mackey Motels’ counterclaim for the costs associated with the preparation, execution and service of the three notices to remedy breach of covenant delivered by Mackay Motels in 2016 – one notice for the unpaid rent in August 2016, one notice for the outgoings in May 2015 and one notice for the outgoings in May 2016 – an amount of $550 for each notice, making a total of $1,650.30 (c) Clause 5.8 of the Lease entitles Mackey Motels to interest on the amounts awarded. [77] Mackey Motels is therefore entitled to judgment on the counterclaim in favour of Mackey Motels for $7,016.13 plus interest. PART C: CONDITION OF THE BUILDING [78] Another battleground was the obligations imposed by the Lease in relation the keeping the building in a good state of repair. It is necessary to explain the way the Lease allocates responsibility for the state of the Motel. Lease Provisions regarding Maintenance and Repair [79] Clause 12.1 of the Lease provided that: The Tenant must: (a) keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel and (if applicable) conference and/or licensed facility; (b) keep the Tenant’s Property clean and in good repair: and (c) if required by the Landlord, promptly rectify defects in and repair damage to the Motel and the Landlord’s Property caused by [negligence etc] and (d) promptly replace damaged plate glass and other glass in the Building with glass of the same or similar quality to that in place when it was last replaced or if it has not been replaced, then to that in place on the Commencement Date; and (e) promptly replace broken hot water systems to the building with a hot water system the same or of similar quality and quantity to that in place when it was last replaced; and (f) promptly repair damage caused by the Tenant or the Tenant’s Agents when removing anything in or fixed to the Motel; and (g) maintain, protect and promptly repair (or replace…) illuminated signs, light fittings, heating, lighting and other electrical equipment…; and (h) maintain and properly repair damage caused to any swimming pool, spa or fountain. 30 See s 126 of the Property Law Act 1974 (Qld). -- 17 of 56 -- 18 Nothing contained in this clause shall require the Tenant to replace the Landlord’s Property where it has reached the end of its normal operating life and has been properly maintained by the Tenant. [emphasis added] [80] Thus, the tenant was obliged to keep the Motel and the Landlord’s Property in “good and substantial repair”. For the Tenant’s Property the Tenant’s obligation was to keep that property “clean and in good repair”. The proviso at the end ensured that the tenant was not obliged to replace capital items. [81] Clause 12.2 contained another proviso: Despite the provisions of Clause 12.1, the Tenant need not carry out work of a structural nature except that which is required because of the act, negligence or default of the Tenant or the Tenant’s Agents or because of the nature of the Tenant’s Business or the Tenant’s use and occupation of the Motel. [82] Clause 12.4 provided that the Tenant must, as often as the Landlord may reasonably require, paint, repaint, recover or otherwise appropriately treat with materials, all of the interior or exterior of the Building to the satisfaction of the Landlord. [83] Four defined terms are relevant: “Motel” - the premises described in Item 2 of the Form 7 to this Lease including: • the Land; and • the Building.31 “Chattels” – the moveable furniture, office equipment, chattels and effects owned and used by the Tenant in the operation of the Tenant’s Business and set out in the annexed inventory, but excluding any items of property that is the Landlord’s Property. “Landlord’s Property” - means all the plant and equipment, fixtures and fittings of the Landlord in the Motel but excluding any items of property that are the Tenant’s Property or the Chattels.32 “Tenant’s Property” - the Chattels and all fixtures, fittings, plant and equipment of the Tenant and set out in the annexed inventory, but excluding any items of property that are the Landlord’s Property.33 [84] There is an odd circuitousness about the latter two definitions. The concept of the Landlord’s Property excludes the Tenant’s Property, and the concept of the Tenant’s Property excludes the Landlord’s Property. Both expressions involve the concepts of plant and equipment, fixtures and fittings. 31 The term ‘Building’ is defined as the fixed improvements, other structures and improvements from time to time erected or existing on the Land and includes the Landlord’s Property and any modifications, extensions or alterations from time to time of the Building or the Landlord's Property. 32 The expression ‘Chattels’ is defined as the movable furniture, office equipment, chattels and effects owned and used by the Tenant in the operation of the Tenant's business and set out in the annexed inventory, but excluding any items of property that is the Landlord's Property. 33 The definitions are in clause 1.1 of the Lease. -- 18 of 56 -- 19 [85] Another more serious problem is that the ‘annexed inventory’ is not annexed to the Lease. And so, the expression ‘Tenant’s Property’ is defined as the ‘Chattels’, which are said to be listed in the missing inventory, as well as “all fixtures, fittings, plant and equipment of the Tenant and set out in the annexed inventory”. The use of the word “and” means that the items must fall within one or other of the four categories (fixtures, fittings, plant and equipment) and be set out in the annexed inventory. [86] The problem of parties negotiating terms of a bespoke contract neglecting to include certain words or figures, or forgetting to include a schedule or appendix, is discussed by the authors Lewison and Hughes.34 The principles explained by those text writers can be summarised as follows: (a) where the parties have left part of the contract blank, or there is a missing schedule or appendix, the contract will be held to be void for uncertainty unless: (i) the context and background allow the court to fill in the gap;35 or (ii) the defective clause can be severed from the contract;36 (b) it will always be permissible for the court to have regard to extrinsic evidence to fill the gap because the presence of a blank space, or the absence of a missing schedule or appendix, will give rise to an ambiguity;37 and (c) the question will always be whether the intention of the parties is clear enough to overcome the missing words.38 [87] In Spectra Pty Ltd v Pindari39 Wootten J took an approach that does not appear to fit neatly within that framework. His Honour said: “In some cases a blank in a document may be dealt with by simply ignoring it, and reading on as if it were not there.” That approach, if it is open to this court, does not assist because the problem here is not a blank space which can be easily ignored.40 The problem is that the definitions of ‘Tenant’s Property’ and ‘Chattels’ are tied to the missing inventory. [88] In this case neither party invited the court to have regard to extrinsic evidence so as to supply the missing ‘annexed inventory’.41 Neither party contended that the context and background allowed the court to fill the gap or that the definition can be severed from the Lease. And, neither party contended that the missing inventory had the consequence that the Lease was void for uncertainty.42 34 Lewison & Hughes, The Interpretation of Contracts in Australia, Lawbook Co 2012 at [8.15]. 35 An example where the court was able to give content is Manren Ltd v Royal & Sun Alliance Insurance Australia Ltd (2003) 12 ANZ Ins Cases 61-568. See also Robinson v Young [2005] NSWSC 777 and Pagano v Cama (1995) NSW Conv R 55-755. 36 An example of a case where the court was unable to give content but was able to sever the clause is New South Wales v Banabelle (2002) 54 NSWLR 503. 37 Lewison & Hughes (supra) at [815]. 38 Lewison & Hughes (supra) at [815]. 39 [1974] 2 NSWLR 617 at 620-621. 40 In Spectra Pty Ltd v Pindari [1974] 2 NSWLR 617, the option to renew a lease was as follows: “Should the Lessee desire to exercise this option it shall give to the Lessor notice in writing to be sent by prepaid registered mail to the Lessor's last known place of residence of its desire so to do not later than (blank) calendar months prior to the expiration of the term hereby granted.” Wootten J was able to read the option as if it merely required notice prior to the expiration of the original term. 41 In fact, there is no evidence as to whether the missing inventory ever existed. 42 Given that the Lease was essentially a demise of motel premises, it would be difficult to argue that the whole Lease was uncertain by reason of the missing inventory. -- 19 of 56 -- 20 [89] Therefore, the only remaining sensible interpretation of the Lease is to regard definition of the ‘Tenant’s Property’ as not having any substantive content. In other words, no chattels, fixtures, fittings, plant or equipment falls within the definition of ‘Tenant’s Property’. [90] That is not as radical an interpretation as it may appear at first blush. The definitions of ‘Landlord’s Property’, ‘Tenant’s Property’ and ‘Chattels’ are designed to serve the purposes of the Lease. Thus, clause 12.1 of the Lease provides that the tenant must keep the Motel and the Landlord’s Property in good and substantial repair, clause 14.5 provides for the landlord to purchase the ‘Chattels’ at termination, and clause 14.6 provides that on termination the landlord must not use the ‘Tenant’s Property’. The fact that the ‘Tenant’s Property’ is a vacuum merely means that the provisions of the Lease do not fasten onto any property of the tenants. But the usual principles of property law continue to apply. At termination, for example, the tenant remains able to take his or her wallet, car keys as well as any other plant, equipment or other property which comprises the tenant’s own property. Fixtures, of course, are the property of the landlord under conventional property law. However, the compulsory purchase regime in clause 14.5 does not fasten onto any specific property because no property is identified by an inventory. [91] It will be necessary to return to this topic in Part E below. The Claim under Clause 14.3 [92] The Carters plead that Mackey Motels breached clause 14.3 of the Lease. That clause is as follows: Subject to the Tenant’s compliance with its obligations under Clause 12.1, the Landlord must take reasonable action to ensure that the Motel and the Landlord’s Property are kept in a good and substantial structural state and condition. [93] Therefore, Mackey Motels’ obligation is subject to the Carters’ compliance with their obligations under clause 12.1 It will be recalled that clause 12.1 of the Lease provided that the tenant must keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel and (if applicable) conference and/or licensed facility and keep the Tenant’s Property clean and in good repair. [94] The actual obligation in clause 14.3, as Mackey Motels points out, is not an obligation to keep the Motel and the Landlord’s Property in good and substantial repair. Instead, it is an obligation to “take reasonable action to ensure” that the Motel and the Landlord’s Property is in “a good and substantial structural state and condition”. That latter expression, and its components, are not defined by the Lease. [95] Counsel for Mackey Motels referred to the reasons of Callaghan J in Speets Investment Pty Ltd v Bencol Pty Ltd43 which, in turn, refer to the reasons of Nicholas J in Holus Bolus Pty Ltd v Wicko Pty Ltd where the landlord’s obligation was to “make all amendments alterations reparations and additions of a structural nature”. His Honour said: 43 [2020] QCA 247 at [130]. -- 20 of 56 -- 21 There are many cases which discuss the meaning of “structure”, “structural alteration”, and “structural repairs”, but all are with regard to the legislation, lease, or agreement in the particular case. Sometimes they afford helpful, but not determinative, guidance for the approach to be taken. In the end, the question is one of interpretation to ascertain the obligation of the party with regard to the words used in the clause in context, and to the surrounding circumstances.44 [96] Mr Kelly also referred to the reasons of Bond J and Callaghan J in Speets Investment Pty Ltd v Bencol Pty Ltd45 as delineating the allocation of responsibility between landlord and tenant for repairs and works required to the premises. Mr Kelly’s submission was that the particular breaches of the landlord’s obligations relied upon by the Carters fit neatly within the description of items which were the landlord’s responsibility. At paragraph 24 of the statement of claim, and in their submissions,46 the Carters contended that the works required, and the allocation of responsibility, was as follows: Item Landlord’s Responsibility (Yes/No) Lease Clause 1. The roof to the front building leaks causing water damage to soffits and internal ceilings Yes 14.3 2. There are cracks to the brickwork associated with the garden beds Yes 14.3 3. The lattice panel on the rear building stairs is rotting and deteriorating to the extent that it requires replacing Yes 12.1 (see proviso) 4. Toilet bowls are cracking due to age and present a safety hazard Yes 14.3 5. Defective water pipes are causing leaks and damage to paintwork and slip hazards in 10 motel rooms Yes 14.3 6. Leaking shower cubicles are causing damage to paintwork and floor-coverings and causing the reinforcing steel in the concrete to rust, thus affecting the structural integrity of the concrete and staining walls and floors Yes 14.3 7. Painting and retiling is required to maintain the property in good and substantial condition but cannot be done in many rooms due to wet walls from water leaking from water pipes inside walls Yes (tiling) No (as to painting) (cf paragraph 69 hereof) 12.2 8. Cracks are present in walls in the front building Yes 14.3 9. There are rotted and defective timber shower doors Yes 14.3 10. There is resultant water damage from roof leaks in the motel residence and motel rooms Yes 14.3 44 [2012] NSWSC 497 at [30], approved by Callaghan J, with whom Sofronoff P agreed, in Speets Investment Pty Ltd v Bencol Pty Ltd [2020] QCA 247 at [128]. 45 [2020] QCA 247. Mr Kelly referred specifically to paragraph [71] (Bond J) and paragraphs [121]- [130] (Callaghan J). 46 The table of defects in paragraph 24 of the statement of claim is reproduced at paragraph [70] of the Plaintiffs’ submissions. -- 21 of 56 -- 22 11. The ceiling in the rear building upstairs motel rooms is sagging Yes 14.3 12. There are tiles falling off the front patio and steps area of the motel Yes 14.3 13. The carport roof guttering in the rear motel building has multiple rust holes causing sections of lining underneath to be water damaged and occasionally fall without notice Yes 14.3 14. Fixed cabinets in motel bedrooms and bathrooms are aged and falling apart Yes 12.1 (see proviso) 15. Handbasins, tapware and mirrors in most bathrooms are aged and surfaces are breaking down as a result Yes 12.1 (see proviso) 16. Fixed toilet bowls in 3 motel bathrooms are unlevel Yes 12.1 (see proviso) 17. Many motel room door locks are aged and frequently fail Yes 12.1 (see proviso) 18. Roof guttering on motel residence has many rust holes Yes 14.3 19. Rusted away metal balustrade on motel residence front porch Yes 12.1 (see proviso)/14.3 20. Rust in front motel building stair stringers Yes 12.1 (see proviso)/14.3 21. Various sections of the front motel building carport roof leaks creating slip hazards during wet weather Yes 14.3 [97] That is a mixed bag of defects. Some appear to be entirely cosmetic, such as the lattice panels (item 3), ‘unlevel’ fixed toilet bowls (item 16), and rust in front motel building stair stringers (item 20). For those defects, the Carters largely rely on clause 12.1 as allocating responsibility to the landlord. Other defects in the list have a less superficial description, such as leaks to the front building roof causing water damage to soffits and internal ceilings (item 1) and water damage from roof leaks in the motel residence and motel rooms (item 10). Other items could be either cosmetic or more structural in character. Examples are the cracks are present in walls in the front building (item 8) and the sagging ceilings (item 11). [98] At least one of the problems with the Carters’ case on the defects is that all that is relied on is that rather arid description of the problem, not supported by any expert evidence on the nature of the defect or what precisely was required to remedy the defect. And so, the cracks present in walls in the front building might be entirely inconsequential and cosmetic, or they may be signal a compromise to the structural integrity of the building. [99] Before returning to the alleged defects, it is necessary to consider the respective obligations of the parties under the Lease. -- 22 of 56 -- 23 Clause 14.3: A good and substantial structural state and condition [100] As the above quote from Holus Bolus Pty Ltd v Wicko Pty Ltd makes clear, much depends on a proper interpretation of the landlord’s obligation under clause 14.3 of the Lease and the context of that obligation. That clause limits the landlord’s responsibility to an obligation to “take reasonable action to ensure” that the Motel and the Landlord’s Property is in “a good and substantial structural state and condition”. The word “structural” cannot be ignored. Nor can one ignore the context that it is the tenant’s responsibility, not the landlord’s responsibility, to: (a) keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel;47 (b) promptly replace damaged plate glass and other glass in the Building;48 (c) promptly replace broken hot water systems;49 (d) maintain, protect and promptly repair or replace illuminated signs, light fittings, heating, lighting and other electrical equipment;50 (e) maintain and properly repair damage caused to any swimming pool, spa or fountain;51 (f) maintain and service the air-conditioning equipment and/or air-conditioning units;52 (g) keep and maintain the waste pipes drains water supply plumbing conduits and other equipment contained near or about the Motel;53 (h) keep the Motel, the Tenant’s Property, the exterior façade of the Building and the exterior and interior portions of windows and the doors and all other plate, glass, glass fixtures, carpets and signage in a neat and clean condition and the Tenant must keep and maintain the interior of the Building in the same physical characteristics and appearance as at the Commencement Date;54 (i) comply with all requirements and recommendations contained in the AAA report, except for work of a structural nature that is required or recommended by the AAA report;55 (j) paint, repaint, recover, clean or otherwise appropriately treat with materials, all of the interior and exterior of the building;56 (k) maintain the gardens and landscaping;57 (l) maintain the AAA rating.58 47 Clause 12.1(a) of the Lease. 48 Clause 12.1(d) of the Lease. 49 Clause 12.1(e) of the Lease. 50 Clause 12.1(g) of the Lease. 51 Clause 12.1(h) of the Lease. 52 Clause 11.6 of the Lease. 53 Clause 11.9(a) of the Lease. 54 Clause 11.11 of the Lease 55 Clause 11.17(c) of the Lease. 56 Clause 12.4 of the Lease. 57 Clause 12.5 of the Lease. 58 Clause 12.6 of the Lease. -- 23 of 56 -- 24 [101] That is a rather comprehensive list of the tenant’s responsibilities. The first of the tenant’s obligations, to keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel, is a broad, general obligation but is supplemented by the more specific obligations that follow. The evident intention of the Lease is that it was the tenant who assumed primary responsibility for keeping the Motel in good and substantial repair. [102] The landlord has no equivalent duty under the Lease. Clause 14.3, as explained, is more limited. It is subject to the tenant’s compliance with its obligations under clause 12.1 (listed above), and is a narrower duty to “take reasonable action to ensure” that the Motel and the Landlord’s Property is in “a good and substantial structural state and condition”. The narrower, structural confines of that duty are consistent with: (a) the proviso in clause 12.1 that nothing contained in clause 12.1 shall require the tenant to replace the Landlord’s Property where it has reached the end of its normal operating life and has been properly maintained by the tenant; (b) clause 12.2 which provides that, despite the provisions of clause 12,1, the tenant need not carry out work of a structural nature except that which is required by reason of the tenant’s negligence, or the negligence of its agents, or the nature of the tenant’s business, or the tenant’s use and occupation of the premises. [103] Therefore, the demarcation between the repairs that are the responsibility of the tenant and those that are the responsibility of the landlord hinges on the word ‘structural’. It is the tenant’s obligation to keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel. The landlord’s obligation is a narrower duty to “take reasonable action to ensure” that the Motel and the Landlord’s Property is in “a good and substantial structural state and condition”. [104] It is also worth noting that the requirement that the landlord take reasonable action to ensure that the Motel59 is in “a good and substantial structural state and condition” is an obligation that is focussed on an outcome – the good and substantial structural condition of the Motel. In other words, clause 14.3 is aimed at restoring the Motel to a proper structural condition. It is not an obligation to effect repairs to any structural element of the Motel. [105] It may be useful to give a simple example. On the one hand, if a structural beam has been damaged by vibrations from nearby building work, clause 14.3 compels the landlord to take reasonable action to repair the structural beam. In that event, the landlord would be required to achieve the outcome that the Motel was returned to a good and substantial structural condition. On the other hand, if the structural beam was affected by superficial damage or surface rust that did not impact the Motel’s structural integrity, clause 14.3 does not require the landlord to respond because the landlord’s obligation is limited to taking reasonable steps to achieve an outcome – the good and substantial structural condition of the Motel. Removing surface rust and repainting would not comprise reasonable steps to achieve that outcome. In this latter situation clause 12.1 is likely to operate because that clause requires the tenant to keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel. 59 For convenience here I have abbreviated “the Motel and the Landlord’s Property” to “the Motel”. -- 24 of 56 -- 25 [106] Of course, as that example illustrates, much depends on the evidence about the defect and the repairs required. The Carters’ Approach – Capital Works [107] That analysis exposes a problem which pervaded the Carters’ approach to Mackey Motels as well as the submissions of their counsel. The Carters submitted that: (a) During the course of the Lease when Mackey Motels was landlord, no or no substantial amount was expended by the Defendant on relevant capital works;60 (b) Mackey Motels was in breach of the Lease because Mackey Motels incurred no substantial expenditures on such capital works by the Defendant throughout the course of its ownership up to the termination of the Lease;61 (c) “Despite the obvious need for capital works by, at the latest, the time of the 2013 Star Ratings Report, and the oft repeated reference of works to the (fictional) works program or works schedule…the essential problem was that no substantive capital works were performed by the Defendant to upgrade the Motel and Landlord’s Property”;62 (d) “The revenue declines at Oscar Motel coincided more closely with the Defendants’ refusal, failure or neglect to commission timely upgrades to the Motel and Landlord’s Property and to repair the rooms timely or at all pursuant to insurance claims and otherwise to respond by actually implementing the capital works the Defendant repeatedly claimed it was putting in its capital works program or schedule”.63 [108] The problem with that approach is that it misinterprets the Lease. It was, as explained above, the tenant who was obliged to keep the Motel and the Landlord’s Property in “good and substantial repair”. The landlord’s obligation was limited to taking reasonable steps to achieve the good and substantial structural condition of the Motel. Nothing in the Lease obligated the landlord to perform a certain level of capital works. [109] The Carters’ submission that Mackey Motels was required to expend an unspecified sum on capital works appears to be based on a misinterpretation of clause 12.1. [110] It will be recalled that the proviso to clause 12.1 states that: “Nothing contained in this clause shall require the Tenant to replace the Landlord’s Property where it has reached the end of its normal operating life and has been properly maintained by the Tenant. The natural and ordinary meaning of that clause is merely to specify an outer limit on the tenant’s obligations under clause 12.1 to keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel. The proviso to clause 12.1 does not create a converse obligation owed by the landlord to replace the Landlord’s Property or to make any particular expenditure on capital works. [111] Similarly, it is necessary to reject the Carters’ argument that under clause 14.3 it was the landlord’s obligation to implement “upgrades and refurbishment” of the Motel in 60 Plaintiffs’ submissions at [58]. 61 Plaintiffs’ submissions at [68]. 62 Plaintiffs’ submissions at [75]. 63 Plaintiffs’ submissions at [94]. -- 25 of 56 -- 26 addition to taking reasonable action to respond to specific problems with the Motel.64 The obligation in clause 14.3 is to take reasonable action to ensure that the Motel and the Landlord’s Property are kept in a good and substantial structural state and condition. That is distinctly not an obligation to upgrade the Motel, or to refurbish it, to some unexpressed standard. A moment’s thought exposes the twin difficulties that clause 14.3 does not say that the landlord is required to upgrade and refurbish, and that, if it did, some modicum of detail would be needed so that the parties were clear on when the upgrade and refurbishment was required, and to what standard. [112] The Carters did not plead or argue that Mackey Motels owed an implied obligation to upgrade or refurbish or to make capital expenditures. Perhaps that was because they assumed that Mackey Motels was burdened by such an obligation. Such a plea and argument, if it were made, would be unable to clear the obstacle presented by the test for implied terms.65 One example of the problems is the requirement that the implied term must be capable of clear expression.66 It would be difficult to craft an implied term that the landlord must expend a substantial sum on capital works without creating uncertainties regarding the types of capital works or the standard of the capital works.67 [113] As explained above, the landlord’s obligation was limited to taking reasonable steps to achieve the good and substantial structural condition of the Motel. The Carters’ Approach – Lack of Evidence [114] Another of the problems for the Carters in prosecuting their case that Mackey Motels breached clause 14.3 is the lack of evidence. For the Carters to succeed under clause 14.3 it was necessary for them to plead and prove that: (a) they complied with clause 12.1; (b) a part of the Motel or the Landlord’s Property was not in “a good and substantial structural state and condition”; and (c) Mackey Motels failed to take reasonable action to put the Motel or the Landlord’s Property in that state and condition. [115] Paragraph 24 of the statement of claim lists the parts of the Motel and Landlord’s Property that are alleged not to be in “a good and substantial structural state and condition”. As explained above, an arid description of the defects is a poor basis upon which to satisfy the court, on the balance of probabilities, that the defect can be characterised as the Motel not being in a good and substantial structural state and 64 See the plaintiff’s supplementary submissions at [1.9]. 65 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283: “…for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”; cf Narni Pty Ltd v National Australia Bank Limited [2001] VSCA 31 per Tadgell JA at [16]. 66 The context here is that a written contract, the Lease, embodies the entirety of the agreement. For the situation where the contract is oral or partly oral see Hawkins v Clayton (1988) 164 CLR 539 at 571- 3 per Deane J; see also the discussion by Lewison & Hughes, The Interpretation of Contracts in Australia, Lawbook Co 2012 at [6.04]. 67 There are, of course, other problems such as the requirements that the implied term be necessary to give business efficacy to the contract and obvious. -- 26 of 56 -- 27 condition. The absence of any expert evidence identifying the nature of the defect and the work required to rectify the defect is decisive. [116] Applying the principles to the Carters’ list of defects, these are the factual conclusions: Item Relates to ‘Good and Substantial Structural State and Condition’? 1. The roof to the front building leaks causing water damage to soffits and internal ceilings The roof would ordinarily be regarded as part of the structure of the Motel but nothing in the description enables the court to conclude that the damage has a structural element. There is no evidence that properly identifies the particular defect or its structural element.68 In any event, the evidence is that Wayne Munn, a professional builder, inspected the problem on 28 August 2011, prepared a quote for works and then completed that work on 25 September 2011. That conduct has not been shown to be a failure to take reasonable action. 2. There are cracks to the brickwork associated with the garden beds There is no evidence that these cracks have any structural element. Even the description does not suggest a structural element. This defect would fall within the scope of the tenant’s obligation under clause 12.1(a) to keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel. 3. The lattice panel on the rear building stairs is rotting and deteriorating to the extent that it requires replacing As above.69 4. Toilet bowls are cracking due to age and present a safety hazard As above. 5. Defective water pipes are causing leaks and damage to paintwork and slip hazards in 10 motel rooms Whilst there was evidence about leaks and damage to paintwork in the Motel bathrooms, the evidence was merely of the existence of a problem which the Carters’ asserted was the responsibility of Mackey Motels. No expert evidence has been adduced to support that complaint.70 The leaks could be the result of any number of possible causes. And, the court is unable to conclude that the damage has a structural element. 68 An email from the Carters to Mackey Motels of 24 August 2011, which refers to the defect in broad terms, was accepted into evidence on the basis its use was limited to non-hearsay purposes. 69 A photograph is in evidence regarding this defect, but there is no other evidence about the nature of the defect. 70 An email sent from the Carters to Mackey Motels on 22 May 2008 refers to the problems but was accepted into evidence on the basis its use was limited to non-hearsay purposes. -- 27 of 56 -- 28 6. Leaking shower cubicles are causing damage to paintwork and floor-coverings and causing the reinforcing steel in the concrete to rust, thus affecting the structural integrity of the concrete and staining walls and floors As above. There is no evidence that supports the allegation that the structural integrity of the concrete was affected.71 7. Painting and retiling is required to maintain the property in good and substantial condition but cannot be done in many rooms due to wet walls from water leaking from water pipes inside walls There is no evidence that these cracks have any structural element. Even the description does not suggest a structural element. And, as the Carters concede, painting was their obligation under clause 12.4. 8. Cracks are present in walls in the front building There is no evidence as to the nature or location of these cracks or that they have any structural element. 9. There are rotted and defective timber shower doors There is no expert or other evidence that suggests that the shower doors had a structural role. It is doubtful that they could have any such role. 10. There is resultant water damage from roof leaks in the motel residence and motel rooms From the description, it appears that this is damage caused by another alleged defect – possibly defect 6 above. In any event there is no evidence as to the nature of the problem or that there was any structural element. To the extent that there is any evidence, there is evidence of the complaint on 11 May 2010 and that the problem was attended to by a tradesman on 8 June 2010.72 Similarly for a complaint on 27 February 2012 which was attended to by a tradesman on 5 March and 20 April 2012.73 11. The ceiling in the rear building upstairs motel rooms is sagging There is no evidence as to the nature of the problem or that there was any structural element. 12. There are tiles falling off the front patio and steps area of the motel As above.74 In any event, this defect would fall within the scope of the tenant’s obligation under clause 12.1(a) to keep the Motel and the Landlord’s Property in good and substantial repair as a high quality motel. 71 An email sent from the Carters to Mackey Motels on 29 May 2009 refers to this problem but was accepted into evidence on the basis its use was limited to non-hearsay purposes. 72 Again, the email sent on 11 May 2010 was accepted into evidence on the basis its use was limited to non-hearsay purposes. 73 Again, the email sent on 27 February 2012 was accepted into evidence on the basis its use was limited to non-hearsay purposes. An email sent on 27 April 2012 which also referred to the problem was accepted into evidence on the basis its use was limited to non-hearsay purposes. 74 The emails identifying this complaint, such as an email on 22 April 2012, was also accepted into evidence on the basis its use was limited to non-hearsay purposes. -- 28 of 56 -- 29 13. The carport roof guttering in the rear motel building has multiple rust holes causing sections of lining underneath to be water damaged and occasionally fall without notice There is no evidence as to the nature of the problem or that there was any structural element.75 14. Fixed cabinets in motel bedrooms and bathrooms are aged and falling apart Photographs were tendered to support the complaint. However, there is no evidence as to the nature of the problem or that there was any structural element. 15. Handbasins, tapware and mirrors in most bathrooms are aged and surfaces are breaking down as a result As above. 16. Fixed toilet bowls in 3 motel bathrooms are unlevel As above. 17. Many motel room door locks are aged and frequently fail As above. 18. Roof guttering on motel residence has many rust holes From the description the defects may or may not have a structural element. However, no evidence demonstrates any structural element. 19. Rusted away metal balustrade on motel residence front porch The description suggests that the defect does not have a structural element. No evidence supports any structural element to this defect. 20. Rust in front motel building stair stringers As above. 21. Various sections of the front motel building carport roof leaks creating slip hazards during wet weather This appears to be the same or a similar complaint to defect 13. The same finding applies - there is no evidence as to the nature of the problem or that there was any structural element. [117] For those reasons, the evidence does not enable the court to make a finding that Mackey Motels breached the repair and maintenance provisions in clause 14.3. The Proviso to Clause 12.1 [118] The Carters rely on the proviso to clause 12.1 to the effect that nothing contained in clause 12.1 shall require the tenant to replace the Landlord’s Property where two conditions are met: (a) the item of Landlord’s Property has reached the end of its normal operating life; and (b) that item has been properly maintained by the tenant.76 75 An email from the Carters to Mackey Motels on 2 January 2008 asserts the defects are to the guttering on the carports and that there are signs that it is rotting the timber supports. However, that email was admitted into evidence on the basis that its use was limited to non-hearsay purposes. 76 See, for example, the table at paragraph 24 of the statement of claim, which is also referred to in the plaintiff’s submissions at paragraph [70]. -- 29 of 56 -- 30 [119] However, no evidence establishes that any particular part of the Landlord’s Property was at the end of its normal operating life, let alone that there was proper maintenance by the Carters. To take item 18 above as an example, the roof guttering on the motel residence may suffer from many rust holes, but that does not prove that the guttering is at the end of its normal operating life. The rust may be due to a lack of maintenance, or even poor installation or poor design leading to pooling of rainwater in the guttering. And the evidence does not establish that the guttering was subject to regular or systematic maintenance by the Carters. [120] The existence of maintenance and repair records was a live issue at the trial. Mackey Motels requested these records.77 Suffice it to say that no records of repairs or maintenance were produced, and there was no evidence that there was any systematic keeping of those types of records. The Carters’ stance was that the Lease did not oblige them to keep those records. That may be correct, but it makes it difficult for the Carters to satisfy the requirement of the proviso that the Landlord’s Property has been properly maintained by them. Certainly, I am not satisfied that the Carters have established, by evidence, the two conditions to the proviso. [121] There is a further problem. As explained above, the proviso to clause 12.1 is merely defensive in the sense that it merely provides that nothing in clause 12.1 shall require the Carters to replace any item of the Landlord’s Property. The proviso does not impose a positive obligation on Mackey Motels as the landlord. Therefore, the reliance on the proviso to clause 12.1 is misplaced. Any breach by Mackey Motels must be found elsewhere in the Lease. The only other clause relied on is clause 14.3 – which is addressed above. PART D: REPUDIATION & TRESPASS Events Leading to Termination [122] It will be recalled from the summary of the facts above that, on 25 July 2016, Mackey Motels issued notices to remedy breach of covenant. Those notices claimed the then outstanding rent of $13,141.61.78 As is usual, the Lease specified that the obligation to pay rent was an essential term of the Lease and that a failure to comply with an essential term of the Lease was an event of default.79 An event of default entitled Mackey Motels to terminate the Lease by re-entering the Motel with or without notice, but, if notice was required by law, then with notice.80 An event of default also entitled Mackey Motels to terminate the Lease by notice. [123] The Carters did not comply with the notices to remedy breach of covenant by paying the outstanding rent. On 29 July 2016 Mackey Motels brought proceedings in QCAT for the outstanding rent. [124] On 9 August 2016 the Carters brought these proceedings. The proceedings were filed by the Carters themselves, without the benefit of lawyers. They sought declarations regarding insurance, damages for economic relief loss in the sum of $1.4m and seeking “relief from the breach notices” and relief from all rent obligations until 6 77 Defendant’s submissions at [121]. 78 The notice also claimed $100.36 for interest and $550 for solicitors’ costs: GJC.001.001.0874. 79 See clauses 16.1 and 16.2 of the Lease. 80 See clause 16.4 of the Lease. Notice was required by s 124 of the Property Law Act 1974. -- 30 of 56 -- 31 months after Mackey Motels had remedied its breaches of clause 14.3 of the Lease. Whilst the Carters did not use the expression ‘relief from forfeiture’ it is plain that, in substance, that is what they were seeking. [125] Two days later, on 11 August 2016, Mackey Motels served a notice to tenant requiring the Carters to deliver up possession of the Oscar Motel at “close of business” on 15 August 2016.81 A Reasonable Time [126] It is necessary to interrupt the chronology here to address Mr Kelly’s argument on behalf of the Carters that, contrary to s 124 of the Property Law Act 1974, the Carters were not permitted “a reasonable time after service of the notice to remedy the breach”.82 [127] Mr Kelly relies on the reasons of Flanagan J in Hookey v Whitelaw.83 In that case, a period of two months was considered to be a reasonable period of time to remedy breaches of a lease comprising a failure to pay rent and other amounts totalling $1,043,528 and a failure to provide a bank guarantee in the sum of $524,389. As His Honour pointed out, one month into the two-month period, the tenant consented to court orders the effect of which was that a substantial amount of the rental arrears was paid, and a form of bank guarantee to a value of $524,389 was provided. [128] Each case, of course, depends upon its own particular facts. Here, there were some 17 days between the service of the notice to remedy and the notice terminating the Lease. The total amount claimed by the notice to remedy breach of covenant was $13,791.97, of which $13,141.61 was the outstanding rent payable on 16 July 2016. The Carters did not ask for more time to pay the sum claimed. They did not say they needed more time to pay. They made what they later described as a tactical decision not to pay. [129] At the time, Mackey Motels may not have realised that the Carters had made a tactical decision not to pay the rent. But, given that there was no request to allow more time to pay, and given the souring of the relationship, and the Carters’ decision not to pay the outgoings in May 2015, and then again in June 2016, Mackey Motels could reasonably have concluded that there was an element of deliberate decision-making at play in the non-payment of rent in July 2016.84 And, before Mackey Motels moved to terminate, the Carters issued their own proceedings in this court.85 [130] It is true that the Lease was not a short-term lease and there were options to renew. The Motel was a going concern, and it was how the Carters earned their livelihood. There was no history of rent defaults.86 But none of that demonstrates that 17 days 81 GJC.001.001.0899. The notice was served pursuant to s 131 of the Property Law Act 1974. 82 At paragraph [128] of the plaintiffs’ submissions there is this submission: “What is a reasonable time may be debated but a period of 17 days plainly was not sufficient.” 83 [2020] QSC 63 at [131], [134]. 84 Of course, at the trial the Carters conceded that they made a tactical decision not to pay the rent. However, the reasonableness of the notice should be assessed at the time of the notice. 85 See the discussion below regarding the court proceedings. 86 The Carters also argued that the moving process was arranged for about 6 weeks after service of the notice. But that is not a factor that demonstrates that 17 days was an unreasonable time period for the Carters to arrange payment of the outstanding rent. That factor addresses a different and irrelevant question. -- 31 of 56 -- 32 was an unreasonable period of time within which to remedy this default, or that there is a proper basis for a finding that 17 days was an unreasonable period of time to remedy this breach. [131] Nor is there anything in Mr Kelly’s complaint that the notice was confusing because the cover letter to the notice referred to termination occurring on 15 September 2016 rather than 15 August 2016. That was an obvious mistake in the covering letter. Certainly, the Carters were not confused by the mistake. As can be seen below, on 15 August 2016 Ms Klein-Carter said she was packing, presumably in preparation to leave or with the intention of conveying to Mr Mackey that she intended to leave. She certainly did not claim that she was confused or that she regarded 15 September 2016 as the termination date. [132] In the circumstances, 17 days was a reasonable time for the Carters to remedy these breaches. Events Leading to 5 October 2016 [133] To return to the chronology, on 15 August 2016 the Carters wrote to Mackey Motels saying this: With reference to the PLA Form 8 [i.e. the notice requiring possession] delivered to us very late on Thursday 11 August, 20l6. The notices issued prior to the delivery of PI.A Form 8 are all under dispute on the grounds previously provided. These issues are the subject of Court and QCAT proceedings and should be resolved before any purported exercise of the asserted right to enter. Accordingly, any attempt to re-enter without a Court Order for possession will be intensely resisted. We otherwise reserve all our rights. [134] At approximately 5pm on 15 August 2016, Mr Mackey and a companion attended the Oscar Motel and enquired with the Carters as to whether they intended to vacate the premises in accordance with the notices.87 Ms Klein-Carter responded that she was packing and that ‘close of business’ for the Oscar Motel was at 9:00pm. Mr Mackey and his companion then left the Motel. [135] Mr Mackey later returned to the Oscar Motel at 9:00pm with Mr Rodney Harris and waited outside the Motel. Mr Mackey and Ms Klein-Carter spoke for a short period of time before Ms Klein-Carter asked Mr Mackey and Mr Harris to leave.88 Shortly after, Mr Harris left, and Mr Mackey left and went to his car. Mr Mackey removed a fold-up chair from the car and sat on the footpath just outside the Motel. Ms Klein- Carter then called the police and two officers arrived at 10:30pm. It appears the police officers took no action and then left. After the police left, Mr Mackey remained on his fold-up chair outside the Oscar Motel until approximately 1:00am the following day. 87 Transcript Day 3 page 52 at line 5. 88 Transcript Day 3 page 53 at line 35. -- 32 of 56 -- 33 [136] Mr Mackey arrived at the Motel again on 16 August 2016 to inspect painting work that was currently being undertaken. He left when he was advised by Ms Klein-Carter that, contrary to the Lease, she had not received prior notice of him entering the premises. [137] On 17 August 2016 Mr Mackey came back to the Motel with a locksmith, Mr Michael Acquasanta. Mr Mackey and Mr Acquasanta walked across the front lawn onto the driveway. Mr Carter then came out to speak to Mr Mackey and Mr Acquasanta. Ms Klein-Carter arrived in her vehicle during this conversation. After Ms Klein-Carter arrived, Mr Mackey and Mr Acquasanta walked off the driveway onto the footpath. A video of this interaction was part of the evidence. [138] On 17 August 2016 Mr Mackey executed a statutory declaration which he delivered to Telstra. The statutory declaration requested that Telstra divert the Oscar Motel telephone number to Mr Mackey on the basis that the Carters were in breach of the lease and that they had been given formal notice evicting them from the premises. That had the effect of cutting off the Carters telephone although, following a complaint by the Carters to the Telecommunications Industry Ombudsman, the service was restored on 21 September 2016.89 [139] On 2 September 2016 Mackey Motels filed and served its defence and counterclaim in this proceeding. The counterclaim sought the outstanding rent, outgoings and possession of the Motel. On 29 September 2016 Mackey Motels applied for summary judgment for possession. That application was listed for hearing on 7 October 2016. [140] The Carters say that they decided that they would terminate the Lease on 26 September 2016. On 30 September 2016 they wrote to the solicitors for Mackey Motels as follows: Given your client's failure to adhere to our lease agreement and his recent unlawful takeover of the telephone numbers at our business, the Oscar Motel, it has become untenable for us to remain at the motel. Subsequently, we will be vacating and delivering up possession of the motel premises to your client on Wednesday October 5. When we have completed the removal of our personal belongings we will deliver the keys to your office at approximately 5.00 pm on 05 October 2016. Any relevant transfer documents pertaining to telephones etc will be left on the motel desk for your client's attention. We continue to reserve our rights at all times. [141] The Carters vacated the Motel on 5 October 2016.90 89 GJC.001.001.1493; Transcript Day 3 page 62 at line 30. 90 See paragraph 30A of the statement of claim and paragraph 95 of Ms Klein-Carter’s affidavit filed 15 September 2022. -- 33 of 56 -- 34 Effect of the Proceedings [142] For the Carters, Mr Kelly makes this submission: Before the Defendant had issued the Notice to Tenant the Plaintiffs had already applied to this Court for relief against forfeiture. In Steak Plains Olive Farm Pty Ltd v Australian Executor Trustees Ltd, the court noted that “relief against forfeiture operates both as a positive claim and as a defence to the owner’s claim for possession”.91 The conventional position is that, if an application is made, the court should stay the proceeding to allow the tenant to pursue appropriate relief. Further, in the ordinary course, should the Plaintiffs have the time and means to apply, an injunction would almost certainly have been issued at that time in their favour in order to protect their position as lessee and to aid their prima facie claim to relief from forfeiture to be ventilated and likely in this case vindicated.92 [143] The sequence is accurate. On 11 August 2016 Mackey Motels delivered a notice terminating the Lease effective at close of business on 15 August 2016. However, two days prior to the service of that notice, on 9 August 2016, the Carters brought this proceeding. In my view, by seeking “relief from the breach notices” the Carters sought, in substance, relief from forfeiture. As White J made clear in Steak Plains Olive Farm Pty Ltd v Australian Executor Trustees Limited93 that claim for relief against forfeiture operates both as a positive claim for relief as well as a defence. [144] But the making of that claim, and the raising of that defence, does not operate to suspend the contractual rights of the parties. As Mr Kelly’s submissions implicitly acknowledge, no stay or injunction was granted by the court which had the effect of preventing Mackey Motels from exercising any right it had to terminate the Lease. Indeed, it is doubtful that such an injunction would have been obtained given the findings made in Part C above.94 Status of the Lease [145] As explained above, the Lease specified that the Carters’ obligation to pay rent was an essential term of the Lease and that a failure to comply with that essential term of the Lease was an event of default. An event of default entitled Mackey Motels to terminate the Lease by re-entry or by notice. That is what happened. The Carters, having failed to pay rent, on 11 August 2016 Mackey Motels served a notice requiring possession and thereby terminating the Lease as at 15 August 2016. The Lease came to an end at that point. [146] Mr Kelly’s written submissions on behalf of the Carters put a rather different narrative: 91 The footnote here refers the reader to [2015] NSWSC 289 at [76]. 92 Paragraphs [118] and [119] of the plaintiffs’ closing submissions. 93 [2015] NSWSC 289 at [76]. 94 The principles applied for interlocutory injunctions are well established: see, for example, SDW2 Pty ltd v JLF Corporation Pty Ltd [2017] QSC 1. -- 34 of 56 -- 35 In the short term [the Carters] resolved to attempt as a “tactic” to get the Defendant’s attention by not paying rent for the first time in their 14 year history as tenant. That was not because of any intention to no longer be bound by the Lease, which they were prepared to litigate to uphold, but instead indicated an attempt to negotiate a result which aligned with their status as a tenant seeking to deal with their landlord when the landlord failed or refused to comply with the Lease.95 [147] That submission must be rejected as contrary to the Lease. The Lease did not entitle the Carters to make a tactical choice not to pay rent. The scheme of the Lease was that a failure to pay rent was a breach of an essential term – whether or not there were tactical choices underlying the non-payment of rent. And, in any event, the Carters’ subjective intentions are irrelevant. The test of repudiation involves an objective consideration of the words and conduct of the parties.96 [148] It is also necessary to consider the Carters’ contentions about repudiation. [149] The Carters do not rely on any term of the Lease to entitle them to terminate.97 They instead rely on alleged conduct which is said by the Carters to constitute a repudiation of the Lease, a repudiation which was accepted on 5 October 2016. The conduct relied on as repudiatory comprises: (a) the alleged trespasses by Mr Mackey; (b) the Telstra telephone number issue; and (c) the alleged breaches of clause 14.3 of the Lease in relation to maintenance and repair. [150] For the reasons explained in Part C above, the evidence does not establish alleged breaches of clause 14.3. The trespass and Telstra claims are considered below. The Trespass Claim [151] The Carters’ trespass claim is elusive. The claim is for damages for unlawful entry and trespass in the sum of $157,700.00.98 However, there is no pleading of the elements of a cause of action for trespass. Instead, at paragraph 30(d) of the statement of claim, the Carters allege that Mackey Motels’ repudiatory conduct comprises: On numerous occasions between 23 July 2016 and 26 September 2016, Scott Mackey on behalf of the defendant entered the Motel premises without notice (at one time trying to open the door to a guest room that was occupied by young adult females), in response to which, on at least two of those occasions, the plaintiffs sought the assistance of the Queensland Police Service. 95 See plaintiffs’ submissions at [109]. 96 See the discussion by JW Carter, Contract Law in Australia, 7th ed at [30-41]. The exception is that it is legitimate to inquire into the bona fides of the promisor where the promisor has purported to exercise an express right to terminate, cancel or rescind. Even though the right is invalid, the good faith of the promisor may prevent its conduct amounting to a repudiation by refusal to perform. 97 See defendant’s submissions at [299]. 98 Statement of claim at prayer for relief (e). See the discussion below (Part E) in relation to this claim for exemplary and vindication damages. -- 35 of 56 -- 36 [152] That paragraph of the pleading is virtually identical to paragraph 92 of Ms Klein- Carter’s affidavit.99 The vagueness of that allegation is obvious. No specific date or occasion is identified. In the cross-examination of Ms Klein-Carter there was this exchange: MR PIGGOTT: Okay. Can we go to paragraph 92 of your affidavit, please? You’ve read what you’ve said there?---Yes. You don’t provide us with any detail about any of these alleged attendances, do you? We don’t have - - -?---I - - - - - - specific dates, times?---I do believe they were in a document that I disclosed which was notes, Mackey notes or something like that. But you don’t give us any details here, do you?---Perhaps not. I – well, yeah. Just numerous occasions. And Mr Mackey had no way of knowing which guests were in which rooms?---He could have asked, but he didn’t. And so when you refer to him at one time trying to open the door of a guest room occupied by young adult females, can I suggest to you that there was no occasion in which Mr Mackey tried to open the door to a guest room occupied by young adult females?---He did. It was in the residence. And I suggest that the reason you’ve included that in your affidavit is because you wanted to embarrass Mr Mackey?---No. It was the truth, that he tried to open the door to a guest room that was occupied by young females. I thought you told us earlier in your evidence that the rooms were locked?---They were, but it didn’t stop him trying to open the door. He didn’t have a key, did he?---No, but he tried to open the door. And are you trying to suggest some sexual motive that Mr Mackey had - - -?---No. - - - for doing this?---No. I’m just saying who was occupying the room at the time, and the concern from me was that being young females that having – if they had opened the door, I don’t think they were there at the time, but had they been there, if they had opened the door to see who was trying to open the door and found a man standing there trying to open their door, that would have been concerning. That would - - - That didn’t - - -?--- - - - not have been good. But that didn’t happen, did it?---Well, it could have if they had been there. But it didn’t - - -?---I don’t know. - - - happen?---Well, if Mr Mackey hadn’t been trying to open a door that he didn’t have a key to, it wouldn’t have happened. It may have happened. But it did not actually happen?---It didn’t happen because we stopped him.100 99 AFF002 – ex 2. 100 Transcript Day 3 page 59 line 23 to page 60 line 24. -- 36 of 56 -- 37 [emphasis added] [153] And so, the evidence is quite unsatisfactory. It is alleged that, on one occasion, Mr Mackey made an unsuccessful attempt to open a door to a guest room that was locked, without knowing whose guest room it was, and at a time when it is likely that the room was unoccupied. In any event, the evidence does not establish that, on that occasion, Mr Mackey’s attendance at the Motel was without consent or was unauthorised. [154] The plaintiffs’ closing submissions adopt the broadest of broad brushes to the trespass claim: (a) The “last straw” for the Plaintiffs, which followed a series of incidents in mid August 2016 in the nature of trespasses by the Defendant’s representatives entering onto the premises without consent, was the Defendant’s interference with the telecommunications for the motel business.101 (b) …at about 5pm on 15 August 2015 Mr Mackey in company with others entered the Motel and asserted that he was taking possession. He departed when the police attended at about 10:30pm that night.102 (c) Over the next days, Mr Mackey repeatedly entered into the premises.103 (d) …the repeated trespasses in that period by Mr Mackey and others on behalf of the Defendant.104 (e) The particular events in mid-August 2016 were examples not just of conduct in repudiation of the Lease but were of such an egregious nature as to constitute trespass and unlawful interference in contumelious disregard of the tenant’s rights so as to justify compensation for trespass and interference manifested in the conduct pleaded at FASOC 36, and exemplary damages.105 (f) The Defendant’s conduct in August 2016 constituted trespass on multiple occasions and a deliberate interference with the carrying on of business by the Defendants while in possession of the Motel and that conduct was of such a deliberate, calculated and egregious nature as to be in contumelious disregard of the Plaintiffs’ rights warranting an award of damages for the trespass and interference and an award of exemplary damages in addition thereto. That is the context for the vindication of rights pleaded. The Claim is for damages for unlawful entry and trespass, not for “vindicatory” damages, as may be seen by reference to the relief claimed.106 [155] One is left wondering when and where the trespass, or trespasses are alleged to have occurred. [156] The video evidence of the altercation on 17 August 2016 establishes that the Carters and Mr Mackey argued with each other, but, for the most part, they did that with Mr Mackey and Mr Acquasanta on the verge of the footpath. In a seven-minute video, at about the point a little more than two minutes in, Mr Mackey and Mr Acquasanta 101 Plaintiffs’ submissions at [10]. 102 Plaintiffs’ submissions at [120]. Note that the evidence is that he actually left when asked to do so and on being told that ‘close of business’ is 9pm and that the Carters were packing. He returned at 9pm but left when police officers arrived and had a discussion with him. 103 Plaintiffs’ submissions at [121]. 104 Plaintiffs’ submissions at [124]. 105 Plaintiffs’ submissions at [169]. 106 Plaintiffs’ submissions at [216]. -- 37 of 56 -- 38 walked from the driveway to the verge/footpath. In other words, after a relatively short delay, they left the motel premises when requested.107 The position is similar with Mr Mackey’s attendance at the Motel on the previous day. He left when he realised notice had not been given.108 [157] Therefore, I am not satisfied that the evidence establishes any incident that comprised trespass. And, even if the evidence had established a trespass, the evidence is clear that there was no financial loss that arose by reason of any trespass.109 [158] There is a further, more fundamental obstacle to the trespass claim. The effect of Mackey Motels’ notice to tenant requiring the Carters to deliver up possession of the Oscar Motel on 15 August 2016 was to terminate the Lease and to bring to an end the Carters’ right to possession. The Carters’ actual possession was good against all, except, importantly for present purposes, those who can show a better right to possession in themselves.110 From close of business on 15 August 2016 the Carters had no right to possession of the Motel. And so, damages for trespass were available to Mackey Motels, not the Carters. The Carters were an ‘over holding tenant’ after the termination of the lease and against the will of the landlord.111 [159] Given the finding that the Lease came to an end on 15 August 2015 (see above), the only conceivable claims of trespass are those that occurred at 5pm and at 9pm on 15 August 2016. At 5pm Mr Mackey was there to retake possession pursuant to a notice. Even if Ms Klein-Carter was correct that ‘close of business’ meant 9pm,112 the Carters have not shown that Mr Mackey’s entry onto the Motel was effected otherwise than with the implicit consent of the Carters. The Motel was presumably open to the public until 9pm. Anybody with legitimate business there had implied consent to attend the Motel office. When Mr Mackey arrived at 5pm, and was asked to leave, he did so. And, on any view, Mackey Motels was entitled to possession of the Motel at 9pm on 15 August 2016. Telstra Claim [160] The Carters’ claim in relation to Telstra is as follows: (a) The evidence shows that by statutory declaration dated 17 August 2016 Scott Mackey, the Defendant’s Director, told Telstra to intercept and direct away from the motel business the telephone and fax numbers critical for the ongoing operations of the Motel.113 (b) On 17 August 2016 Mr Mackey swore a statutory declaration which he delivered to Telstra asserting the eviction of the Plaintiffs and seeking to take ownership of the phone and fax numbers for the Motel. Remarkably, without reference to the Plaintiffs, Telstra initially complied and only following a complaint by the Plaintiffs to the Telecommunications Industry Ombudsman 107 MAC.001.001.0276 at 2 minutes 21 seconds. 108 Transcript Day 3 page 55 line 26. 109 See, for example, Transcript Day 3 page 53 lines 11 to 13 (15 August 2016); Transcript Day 3 page 55 lines 26-42 (16 August 2016). 110 See Delaney v T P Smith Limited [1946] KB 393; Balkin & Davis, Law of Torts, 6th ed. (2021) at [5.14]. 111 Grainger v Williams [2005] WASC 286 at [57]. 112 There was no direct evidence on this issue. 113 Plaintiffs’ submissions at [11]. -- 38 of 56 -- 39 was the interception terminated and the telephone and fax numbers returned to the use of the Plaintiffs.114 [161] Mr Kelly made the serious allegation that Mr Mackey swore a false declaration to Telstra.115 However, the claim does not withstand scrutiny. The text of the statutory declaration that Mr Mackey gave to Telstra was as follows: I, Scott Warren Mackey of [address deleted] am the Director of Mackey Motels Pty Ltd (see attached ASIC search). Mackey Motels Pty Ltd is the owner of the freehold property known as Oscar Motel located 252 Bourbong Street, Bundaberg, Qld 4670 (see Rates Notice and Title Searches attached). I do solemnly declare that the current tenants Gary Carter and Wendy Klein- Carter have breached the terms of their lease (see attached Notices). They have been given formal notice that they are legally evicted from the premises as from 16/08/2016 (see attached Form 8). This business operates with a current phone number 07 [number deleted] and fax number 07 [number deleted] and as the owners of the Motel we wish to take the 'ownership· of the phone and fax number immediately and believe the current owners of the numbers will not willingly transfer due to the situation of eviction. This transfer is needed to preserve the value and goodwill of this motel. I undertake and agree to hold those numbers to the order of Telstra Ltd should that be required. [emphasis added; personal details deleted] [162] No specific falsity is alleged. And none can be discerned. The Carters had breached the Lease by failing to pay the rent. They had been given formal notice that they were legally evicted. And, given what had happened on 15 and 16 August 2016, it was perfectly logical for Mr Mackey to express his belief that the Carters would not willingly transfer the numbers. [163] In any event, I accept the defendant’s submission that the Carters have not pleaded a discernible cause of action concerning their complaint about the diversion of the Telstra telephone and fax lines.116 All of this occurred after the Lease had come to an end, and so the conduct could not amount to, for example, some breach of a covenant of quiet enjoyment,117 or repudiation. Indeed, the provision in the Lease relating to quiet enjoyment is premised on the basis that the tenant complies with its obligations under the Lease. From the time of their failure to pay rent on 16 July 2016, the Carters were non-compliant with that precondition. [164] And, even if all of that were wrong, the impact on the Carters looks to have been rather minimal. From the transfer of the calls on 24 August 2016, the Carters were able to receive all calls if they answered within three rings, and from 6 September 2016 all calls were diverted to Mr Carter’s mobile. Then, on 21 September 2016, Telstra reversed the transfer. No guest or income has been shown to have been lost. 114 Plaintiffs’ submissions at [122]. 115 See, for example, plaintiffs’ submissions at [131(14)] and paragraph 30(a) and (b) of the statement of claim. 116 Defendant’s submissions at [360]. 117 Clause 14.1 provides for quiet enjoyment, but the provision is rather confined: “Subject to the rights of the Landlord, if the Tenant complies with the Tenant’s obligations under this Lease, then the Tenant may hold the Motel during the Term without interruption by the Landlord.” -- 39 of 56 -- 40 Repudiatory Conduct? [165] It is follows that the three categories of Mackey Motels’ conduct relied on by the Carters as repudiatory, namely the alleged trespasses by Mr Mackey, the Telstra issue and the alleged breaches of clause 14.3 of the Lease, are not shown by evidence to be breaches of the contract, let alone repudiatory conduct. [166] There are three other problems with the repudiation claim. [167] The first is that, for the reasons stated above, the Lease was already at an end on 15 August 2016. [168] The second is that, even if there had been repudiatory conduct, there was no acceptance of that repudiation until their email of 30 September 2016. However, the Carters accepted that, by that time, Mackey Motels had indicated that it was going to let the Court rule on the continuing disputes between the parties about delivery up of possession, payment of rent and payment of outgoings for insurance.118 [169] The third is that it is difficult to characterise the conduct relied on by the Carters as repudiatory. The trespass and Telstra issues arose after termination of the Lease. The alleged breaches of clause 14.3, even on the Carters’ interpretation of the Lease, involved various conduct or inaction over the years from 2008 to 2016. Whilst there are a number of emails concerning alleged problems over that period there is a conspicuous absence of an express notice by the Carters that a failure to attend to specific repair items would be regarded as repudiatory.119 Such a notice may not have been essential but the absence of such a notice, and a failure to respond, means that the situation could simply be regarded as Mackey Motels adopting a reasonable interpretation of the Lease. [170] For all of those reasons, the evidence does not establish that Mackey Motels breached or repudiated the Lease. PART E: LOSS OF PROFITS The Claims [171] In case I am wrong in the conclusions arrived at in Parts B, C and D above, it is necessary to consider the Carters loss of profits claim. [172] The Carters plead that, but for Mackey Motels’ breaches of the Lease,120 the Carters would have exercised options to extend the term of the Lease until 15 April 2027 and would have earned $2m in profit or lost the opportunity to sell the Motel business as a going concern for $340,000. The Carters also contend that they lost $1m in revenue by reason of breaches of clause 14.3 relating to repair and maintenance. They claim 118 Transcript Day 3 page 62 line 29 (Ms Klein-Carter); Transcript Day 4 page 20 line 32 (Mr Carter). 119 The Defendant’s submissions refer to Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2022] WASCA 69 at [515] where Buss P and Murphy JA (Vaughan JA agreeing) said: “Repudiation is a serious matter and is not to be ‘lightly found or inferred’. The repudiation of a contract must appear clearly and without ambiguity. The onus is on the party alleging repudiation to prove it.” 120 Paragraph 34A of the statement of claim relies on the alleged breaches in relation to insurance, repair and maintenance (clause 14.3), trespass and the Telstra issue. -- 40 of 56 -- 41 $157,700 for damages in vindication of their property rights and the same sum for exemplary damages.121 Causation [173] The Carters’ case is that the alleged breaches in relation to repair and maintenance under clause 14.3 caused that significant financial loss.122 The onus is on the Carters to prove that the loss was caused by the defendant’s breach.123 [174] To prove their loss the Carters relied on the evidence of an expert Mr Ian Shimmin, an independent advisor with experience in applied property economics and market research. There are two broad steps to Mr Shimmin’s expert analysis. First, Mr Shimmin’s table 7.1 exposed a gap between the Oscar Motel’s expected revenue and the actual revenue for the financial years between 2011/12 and 2016/17. The expected revenue is based on Oscar Motel’s market share. Second, Mr Shimmin identifies eight possible reasons for the gap. He then, in a rather broad way, excludes some of those reasons as being unlikely, and says that therefore it would be reasonable to conclude that the gap is due to: (a) changes in the physical appearance and attractiveness of the property; (b) lack of maintenance of the establishment internally and externally; and (c) failure to upgrade furniture and amenities. [175] Mackey Motels relied on an expert report by Mr Jon Norling, who is both an economist and an accountant. He expressed this view: It is my view that the Shimmin Report cannot be relied upon to estimate lost profits relating to the breach of contract. The major problems with this Report are that: (a) It estimates lost revenue rather than lost profits; (b) The analysis assumes that Oscar Motel should have obtained a 2.6% market share of total accommodation revenue, which ignores the fact that the competitive supply increased over this period; (c) The Report attributes some of the lost turnover to “failure to upgrade furniture and amenities” which I understand to be the responsibility of the Plaintiffs (being chattels), not the Defendant, but that is a matter for the Court; (d) The Report has converted a calculated lost revenue of $1.316 million into 2021 dollar values rather than estimate actual lost revenue and then apply an interest factor; (e) The Report includes lost revenue in the period after the Plaintiffs exited the Motel (6 October 2016 to 15 April 2017); and 121 There is also a claim for $15,869 for the recovery of the outgoings/insurance. That claim is considered in Part B above. 122 The breaches alleged in relation to insurance are the subject of a separate claim. The breaches in relation to trespass and the Telstra issue are not alleged to be productive of financial loss. 123 Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 at [24] (referred to in the defendant’s closing submissions at [260]. -- 41 of 56 -- 42 (f) The Report has not assessed the performance of the Motel after the Plaintiffs exited the Motel nor considered the steps undertaken by the Defendant to subsequently improve the Motel's performance. Joint Expert Report [176] The experts then prepared a joint report. They both modified their opinions, but there were still significant areas of disagreement. Mr Shimmin’s conclusions were that: (a) The agreed difference between actual revenue and expected revenue is: (i) $925,161 under Scenario 1, which is based on an end date for the loss period of 15 April 2017; (ii) $683,432 under Scenario 2, which is based on an end date for the loss period of 5 October 2016.124 (b) As demonstrated by the decline in the subject property’s Performance Index between 2011 (102.1) and 2015 (69.9) and further to 43.2 in 2016 (see Chart 3.1 / Appendix F) it is quite clear that the Oscar Motel had been suffering a consistent decline in its competitive positioning since at least 2011. (c) The significant drop to 43.3 in 2016 is an anomaly and is likely due to a multitude of factors. Changes in the competitive environment is unlikely to be a significant factor, and it appears from the hotels reviews that there was no suggestion that management had underperformed relative to previous years. (d) Although I cannot determine the relative importance of the various factors resulting in the decline in revenue, as this is a matter for the Court based on the evidence of others, I agree that lost profits arising from the lost revenue based on Scenarios 1 & 2 should form the basis of determining both lost profits and lost business value. In my view this requires input from another accountant. [177] That last paragraph is instructive. Mr Shimmin is unable to determine “the relative importance of the various factors”. It is a rather tepid support for the idea that the alleged breaches in relation to repair and maintenance under clause 14.3 caused that significant financial loss. [178] Mr Norling’s conclusions were that: (a) The Oscar Motel operates in a competitive market defined as hotels, motels and serviced apartments (15 or more rooms) in the Bundaberg TR (the Competitive Properties); (b) The Oscar Motel performed at slightly (5-6%) below the average performance level of the Competitive Properties during the years not involved in the dispute; (c) The Oscar Motel’s performance deteriorated from the 2012 financial to the 2016 financial year. However, in the 2012 to 2015 financial years, performance declined by an average of 15.4% (20% below the Competitive Properties), whereas in the 2016 financial year performance declined by an average of a very significant 54.2% (57% below the Competitive Properties); 124 The Shimmin report adopted the period of relevance as ending on 15 April 2017 – the end of the lease period. The Norling report adopted the termination date, 5 October 2016 as the relevant end date. -- 42 of 56 -- 43 (d) The quantum and timing of the reduction in performance during the 2012 to 2015 period could potentially be due to a diminution in the standard, repair and presentation of the buildings, fixtures, fittings, plant, equipment, furniture and chattels. He has seen no evidence to suggest that the Defendant was responsible for this reduction in performance, but that is a matter for the Court. The total lost profits potentially attributed to these issues was in the order of $390,000 for Scenario 1 and $336,000 for Scenario 2; (e) Another factor or factors have affected the performance of the Oscar Motel during the 2016 financial year that are not associated with the factors driving the lower performance in the 2012 to 2015 financial years. Based upon the available evidence, two possible factors comprise increased competition from the adjoining Acacia Motor Inn and one of the Plaintiffs having experienced issues with her parents. The quantum of lost profits attributed to these other factors is in the order of $326,000 for Scenario 1 and $192,000 for Scenario 2; (f) The amounts of lost profits potentially attributed to a diminution in the standard, repair and presentation of the buildings, fixtures, fittings, plant, equipment, furniture and chattels is in the order of $390,000 (Scenario 1) and $336,000 (Scenario 2), which falls well short of the $2.5 million claimed by the Amended Claim. [179] Mr Norling concludes by saying that he has seen no evidence indicating that Mackey Motels is responsible for the estimated lost profits, but that is a matter for the Court. [180] Both experts approached the task in a useful way. Overall, I preferred the evidence of Mr Norling. Mr Shimmin focussed on lost revenue rather than lost profits.125 He was not persuaded to consider the performance of the Oscar Motel after 5 October 2016 when it was operated by Mackey Motels. That was, at the least, a relevant consideration. Similarly, Mr Shimmin seemed to give less than appropriate weight to the impact of competing motels, including the renovated Acacia Motor Inn next door. It is also a concern that Mr Shimmin was forced to analyse causation by this process: (a) identifying eight possible reasons for a reduction in revenue from the revenue that was expected; (b) and then excluding some of those reasons as being unlikely for reasons that are not carefully explained; (c) and then concluding that it would be reasonable to conclude that the reduction is due to: changes in the physical appearance and attractiveness of the property; lack of maintenance of the establishment internally and externally; and a failure to upgrade furniture and amenities. [181] That process appears to involve impression rather than an analysis of the evidence. [182] Both expert reports were also burdened by a lack of any financial information about the financial performance of the Oscar Motel during the period 1 July 2016 to 5 October 2016, and by a lack of information regarding the terms on which farm labourers stayed at the Motel from the beginning of 2015. I was, however, not 125 Mr Shimmin did not convert lost revenues to lost profits, considering this to be a matter for the accountants and the Court. -- 43 of 56 -- 44 convinced that the Carters’ operation of the Archer Park Motel had a discernible impact on the financial performance of the Oscar Motel. Conclusions Regarding Causation and Lost Profits [183] I am not satisfied that the Carters have proved that the alleged breaches in relation to repair and maintenance under clause 14.3 caused any significant financial loss. I agree with the Mackey Motels’ submission that all that the expert economists have done is to identify the extent of decline in revenue per available room performance in the period from 1 July 2010 to 5 October 2016 or 15 April 2017, and to identify potential reasons for that. [184] In accordance with Mr Norling’s evidence, the maximum potential lost profits due to the standard of repair of the Motel and chattels is $324,175. Lost Future Profits [185] Paragraph 34A of the statement of claim alleges that, but for Mackey Motels’ insurance breaches, its repair and maintenance breaches, and the trespass/Telstra issues, the Carters would have exercised options to renew the lease up to 15 April 2027. By paragraph 34B it is contended that the Carters would have continued to operate the Oscar Motel and would have earned profits of $2m. A table in paragraph 34B sets out the calculation of those lost profits. [186] It is a bold claim. No expert evidence supports the claim. And yet the Carters’ submissions described the exercise of adapting some figures in Mr Norling’s section of the joint expert report as “a conservative and relatively uncomplicated approach to revenue and costs to identify loss”.126 However, the revenue figures relied on are the revenues generated by Mackey Motels when they took over the Motel. [187] In his cross-examination of Mr Norling, Mr Kelly applied some energy to try to have Mr Norling agree that his post-2016 figures could be adopted as an estimate of the likely profits which the Carters would have achieved if they had continued. Mr Norling resisted: MR NORLING: …But fundamentally, the difficulty I have is that the table in paragraph 34B purports to set out the profits that would have been made by the plaintiff if it was to continue operating the motel. The facts are that in two ’16 financial year the plaintiffs operated at a loss. And I have no confidence and I can see no evidence that the plaintiffs, if they had continued to operate the motel after the 5th of October two ’16, would have magically turned around its operations to reflect the actual revenues that were achieved by the defendants. MR KELLY: …But as a hypothetical - - -?--- MR NORLING: As a hypothetical, someone can prepare some estimated revenues and, therefore, estimated profit levels. So I’m not disputing the fact 126 See plaintiffs’ submissions at [179]. The plaintiffs adopt the figures by Norling (JER Table F.1 and T9) for the revenue less costs which are known for the period up to the time of Norling’s report and then predicated on the same market share thereafter. -- 44 of 56 -- 45 that someone can; it’s just that I’m not confident that I would be able to prepare that based upon current information. MR KELLY: But you accept that a conservative increase in revenue of two per cent a year wouldn’t be unreasonable? MR NORLING: Over the period from 21 to 27, an elevation of two per cent per annum over that year is not unreasonable. MR KELLY: Okay. So that could be applied to table 2.1 to the figures after that going forward? MR NORLING: Yes and, yes, only on the proviso that one accepts that the plaintiffs loss making position would magically have improved on and from the 5th of October. And that’s an issue that you and I, I think, differ. [emphasis added] 127 [188] Mr Norling’s misgivings about simply adopting Mackey Motels’ profitability figures for this purpose appear to me to be well founded. Mr Norling struck me as a careful expert witness. As the extract from the transcript above illustrates, he was willing to make concessions where appropriate. But he was unwilling to concede that table 34B represented a reasonable estimation of the profits that the Carters were likely to have derived. The recent history of the Carters trading was against extrapolating Mr Norling’s figures. In short, no expert evidence supports the claim for lost future profits. [189] In any event, even if the breaches alleged were proved, this claim cannot succeed. First, the lease had been validly terminated by Mackey Motels. Any right to exercise options had been lost. Second, even if Mackey Motels had not terminated the Lease, the right to exercise the options, as is usual, is conditioned on the tenant complying with its obligations under the Lease.128 The Carters had not complied with their obligations and their claim for relief against forfeiture had no realistic prospect of success.129 Third, the Carters were unlikely to exercise the options. They had made unsuccessful attempts to sell the business. And, in an email on 2 February 2016 Ms Klein-Carter expressly said this: Following the death of my father in the latter part of last year and subsequent issues arising with my elderly mother, Gary and I have decided to leave the motel industry after almost 14 years here at the Oscar Motel. We are therefore planning to sell the lease on our motel. If anybody knows people interested in purchasing a business in Bundaberg, please get them to give us a call. The motel certainly doesn’t owe us anything so we are happy to negotiate a low price for a quick sale. 127 Transcript Day 9 page 5 lines 1 to 23. 128 Clause 3.2 of the Lease. 129 The claim for relief against forfeiture, which was claimed but not explicitly pleaded, depends upon proof that Mackey Motels was in breach of its obligations under clause 14.3. As explained, that claim involves an error in the interpretation of the Lease (namely that clause 14.3 obliges the landlord to spend an unspecified sum on capital works) and a lack of evidence: see Part C above. -- 45 of 56 -- 46 [190] The evidence does not support a finding that, if they had not delivered up possession on 5 October 2016, the Carters would have exercised the options. [191] The Carters make an alternative claim that they lost the opportunity to sell their business and leasehold interest for $340,000. That loss of opportunity is based on a proposed sale to Simon and Jenny Francis in March 2016. The reasons that sale did not proceed were not explored in any detail. Mr and Ms Francis were not called to give evidence. What is clear, though, is that during the negotiations the Carters gave Mr and Ms Francis financial information which Ms Klein-Carter had prepared, and which falsely embellished the financial performance of the Oscar Motel.130 [192] Ms Klein-Carter sought to justify her conduct on the basis that most motels are sold on the basis of this kind of dishonest behaviour. This dishonest behaviour is, she said, “more common in the industry than most people … would like to accept…it is more prevalent than not prevalent in the industry”. Ms Klein-Carter also relied on the principle of caveat emptor.131 [193] Mr Carter had reviewed the figures prepared by Ms Klein-Carter and knew that the figures falsely overstated the financial performance of the business. He also sought to justify the dishonesty on the basis that there was a lot of fudging of figures in the industry.132 [194] The Carters’ rationalisation for their dishonesty, namely that there was an industry- wide practice of dishonesty, was not supported by any evidence. There is something disturbing about the idea that personal responsibility for deliberate and calculated dishonesty can be rinsed clean by simply seeking refuge in a vague and unsubstantiated assertion that ‘everybody does it’.133 [195] In any event, the difficulty is that the only evidence of a lost opportunity is the unexplored failure of the negotiations with Mr and Ms Francis, despite the communication to them of figures that overstated the financial performance of the Motel business. Even if the claim were otherwise a good claim, there is no sufficient evidence which demonstrates that the Carters lost the opportunity to sell their business for $340,000. There is no expert or other evidence that enables the court to be satisfied that the business had any particular worth, especially having regard to its recent lack of profitability and the short period of time left before the term of the lease expired. Vindication and Exemplary Damages [196] If one accepts that, contrary to the findings made above, that Mackey Motels did not have a right to re-enter the Motel on 15 August 2016, it is necessary to consider the Carters’ claim for vindication and exemplary damages. [197] Paragraph 36 of the statement of claim asserts a claim by the Carters for “damages in vindication of their property rights” based on the trespass and Telstra issues. They 130 These ‘For Sale’ figures were not the figures briefed to the Carters’ expert, Mr Shimmin: see Transcript Day 2 page 60 line 11. 131 Defendant’s submissions at [79(c)]. 132 Transcript Day 4 pages 30 to 33. 133 As it happens, none of the issues turn on credibility. -- 46 of 56 -- 47 claim a sum of $157,700 – equivalent to one year’s rent. The Carters also claim exemplary damages in the same sum. [198] The Carters’ closing submissions explain the claims in two different paragraphs. The first is as follows: The particular events in mid-August 2016 were examples not just of conduct in repudiation of the Lease but were of such an egregious nature as to constitute trespass and unlawful interference in contumelious disregard of the tenant’s rights so as to justify compensation for trespass and interference manifested in the conduct pleaded at FASOC 36, and exemplary damages. These propositions are readily reinforced by the case law, e.g. Cash Handling Systems Ltd v Augustus Terrace Developments Ltd; Ingram and Knee v Patcroft Properties Limited; TCN Channel Nine Pty Ltd v Ilvariy Pty Ltd; Drave v Evangelou. [footnotes omitted].134 [199] The second paragraph which prosecutes these claims is as follows: The Defendant’s conduct in August 2016 constituted trespass on multiple occasions and a deliberate interference with the carrying on of business by the Defendants while in possession of the Motel and that conduct was of such a deliberate, calculated and egregious nature as to be in contumelious disregard of the Plaintiffs’ rights warranting an award of damages for the trespass and interference and an award of exemplary damages in addition thereto. That is the context for the vindication of rights pleaded. The Claim is for damages for unlawful entry and trespass, not for “vindicatory” damages, as may be seen by reference to the relief claimed.135 [200] As to those submissions, it is necessary to make these points. First, the idea that ‘vindicatory damages’ is a separate species of damages was discarded by the High Court in Lewis v Australian Capital Territory.136 The Carters must therefore prove a compensatory basis to justify an award of damages in vindication of their property rights. [201] Second, even assuming the Carters’ rather elusive trespass claim could be identified and extracted from the altercations between the parties after 15 August 2016, the trespasses so extracted are interactions where Mackey Motels asserted a contested right to possession of the Motel. The situation could not be further from the fact situation in, for example, TCN Channel Nine Pty Ltd v Ilvariy Pty Ltd where the resident was callously tricked by a TV film crew.137 [202] Third, there is no evidence that indicates that Mr Mackey refused to leave when asked to do so. The video evidence largely shows Ms Klein-Carter and Mr Mackey arguing rather unceremoniously with Mr Mackey remaining on the footpath, beyond the Motel boundary, and Ms Klein-Carter returning fire from within the Motel boundary. Neither appeared to be intimidated by the other. Certainly, there is no evidence of the “distress and humiliation” or “contumelious disregard” of the rights of the landowner 134 The plaintiffs’ submissions at [169]. 135 The plaintiffs’ submissions at [216]. 136 (2020) 271 CLR 192 at [2], [22], [50] and [104]; defendant’s submissions at [342]-[350]. 137 [2008] NSWCA 9. -- 47 of 56 -- 48 or the “sense of injustice” discussed in Lewis v Australian Capital Territory138 and Plenty v Dillon.139 [203] It follows if trespass were proved the damages would be nominal damages. PART F: CHATTELS [204] The Lease provides a regime for dealing with the ‘Chattels’, as that term is defined, once the Lease has been terminated. The starting point is clause 14.5 of the Lease: On the Expiry Date, or if an Event of Default occurs and, as a consequence this Lease is terminated, the Landlord must purchase the Chattels from the Tenant upon the Landlord re-taking possession of the Motel. The purchase price of the Chattels will be that price agreed upon between the Landlord and the Tenant or, if there is a dispute about the purchase price, then that dispute is to be settled by a valuer nominated by the President for the time being, of the Queensland Law Society. Either the Landlord or the Tenant may ask the President to nominate the valuer. The valuer must: - (a) be a member of the Australian Institute of Valuers and have a minimum of 5 years experience in valuing motel chattels furniture and effects of a similar type to the Chattels; and (b) value the Chattels based on the existing use of the Chattels in situ in the Motel and as a going concern; The valuer is to act as an expert and not an arbitrator. Neither the Tenant nor the Landlord may dispute in any way that person’s decision. The costs of the valuation is to be paid equally by the Landlord and the Tenant. The purchase price must be paid by the Landlord to the Tenant or a person authorised by the Tenant as provided in Clause 15.3. [205] In that way, clause 14.5 provides for a compulsory purchase at a price to be agreed or, if not agreed, at a price fixed by the expert valuer. The Lease plainly envisages that the process is to be reasonably swift. The tenant must vacate on termination,140 but the landlord may not re-enter and use the tenant’s property until the purchase price is agreed or determined by the expert.141 However, the tenant is not entitled to remove the Tenant’s Property which, it will be recalled, includes “the Chattels” as well as “all fixtures, fittings, plant and equipment of the Tenant and set out in the annexed inventory, but excluding any items of property that are the Landlord’s Property”. [206] The Carters’ submissions explain what happened in this way. On 5 October 2016 the Carters handed over the keys as well as an inventory of the chattels and the amount they proposed for payment in the form of a tax invoice for $242,000 (based on the then insured value of the chattels).142 However, the following day the solicitors for Mackey Motels identified a threshold problem, namely that clause 14.5 refers to an 138 (2020) 271 CLR 192 at [161] (per Edelman J). 139 (1991) 171 CLR 635. 140 Clause 17.1 of the Lease. 141 Clause 14.6 of the Lease. 142 Plaintiff’s submissions at [187]. -- 48 of 56 -- 49 annexed inventory which is not recorded on the title and is not recorded as part of the recent extension of the Lease. Threshold Issue – The Missing Annexure [207] And so, from the time the Motel was vacated or abandoned by the Carters, Mackey Motels contended that there was no annexed inventory and that placed in jeopardy any compulsory purchase under clause 14.5. The Carters’ submissions about this are as follows: There was then [i.e. after 7 October 2016] a dispute about whether clause 14.5 applied at all and it may be noted that the Defendant still pleads a contrary argument. The Defendant’s argument from the outset that there was no inventory attached to the Lease was an impediment to the appointment of an independent expert valuer to carry out the type of expert determination prescribed by clause 14.5. That argument appeared to be resolved by the Order of Justice Boddice dated 27 November 2020. The Plaintiffs do not suggest that the Order dated 27 November 2020 in any way affects or alters the contract for expert determination pursuant to clause 14.5 of the Lease. Instead, the common sense position the Plaintiffs have adopted regarding the true meaning and effect of clause 14.5 is that the clause was intended by the parties to apply also in the event of termination, as here, and that the inventory included what chattels were at the Motel at the relevant time, including any in an inventory attached to the Lease. This is because the proper reading allows that what was included in the inventory in 2002 was always going to be subject to change over the long period of time indicated by the term of the Lease, inclusive of the various options provided for by the Lease. The inventory at commencement merely represents one factor that would identify what the inventory was at the time when the contract for the expert determination came to be acted upon by the parties or enforced.143 [208] There are therefore these submissions to consider: (a) whether the order of Boddice J made on 27 November 2020 resolved the ‘no annexed inventory’ issue; (b) whether the true meaning and effect of clause 14.5 of the Lease is that the regime in that clause applies to chattels in the Motel at the relevant time, including any chattels listed in an inventory annexed to the Lease; (c) whether a factor supporting that interpretation is that the inventory was always going to be subject to change given the term of the Lease. [209] The order of Boddice J was made more than four years after the Carters vacated the Motel. Both the order and a transcript of the review proceeding are in evidence. During the course of the argument there was this exchange: HIS HONOUR: Because four years is too late. Your client has had the opportunity to participate many years ago. They chose not. That’s their problem. Not the defendants. 143 Plaintiff’s submissions at [191], [192]. -- 49 of 56 -- 50 MR KELLY: Then obviously the order should reflect that the parties proceed to the valuation pursuant to 14.5. HIS HONOUR: That’s so. I accept that, at the end of the day, even though there has been an expense to the defendants who have tried to facilitate the process. That the appropriate way is to have an independent person appointed, so that your clients don’t feel that a valuer was picked that they don’t like. But why wouldn’t it effectively be a modification of [paragraph] 3D [of a draft order], that is, that there – a valuer will be appointed to value the chattels on the basis that once – each side will give that valuer what they say were the chattels at the time. That person can provide alternate valuations depending on the process. And there can, if need be, an argument at the trial as to whether the defendants are [indistinct] so they’d need evidence of – from their valuer, in respect of the matter. It seems to me that that’s the best solution. I am satisfied, notwithstanding what Mr Windsor has said, I am satisfied that it would not be fair to your clients to require them, to any effect, accept the valuation that has been obtained by the defendants. But I’m not going to allow a process where they have to go physically meeting each other and argue about what’s there now and what wasn’t. [210] The relevant order was that: The parties are to attend to, cooperate in and do all things reasonably required for the appointment of a valuer to value the chattels in the way prescribed by clause 14.5 of the Lease, with the right of each party to: (a) provide the valuer with an inventory of chattels they contend were the chattels as at 5 October 2016, and documents relating to replacements made to the inventory thereafter; (b) provide to the valuer a brief summary of disputed items of chattels the parties contend were the chattels in situ at the leased premises as at 5 October 2016; (c) request the valuer, so far as necessary or appropriate, to provide alternative values in respect of any chattels insofar as there is a dispute about the items which comprised the chattels as at 5 October 2016. [emphasis added] [211] Nothing in the content or context of that order supports the view that His Honour resolved the ‘no annexed inventory’ issue, or indeed any substantive issue. The hearing was a review. The focus was on timetabling of the steps in the proceeding. The parties were largely in agreement about the timetable for the progress of the proceeding. The disagreement concerned the utility of the appointment of a fresh valuer in circumstances where the Carters had, four years before declined to participate in a process in accordance with clause 14.5, Mackey Motels had engaged its own valuer, and four years had elapsed meaning that the items in the Motel were likely to be different. Recognising those difficulties, His Honour made directions for -- 50 of 56 -- 51 the appointment of a valuer. That appointment had some similarities with the procedure under clause 14.5 of the Lease but there were differences.144 [212] In that context, it is surprising that the Carters contend that Mackey Motels forfeited substantive rights at that review hearing. The whole purpose of the directions, including the directions concerning the proposed valuer, was to progress the proceeding to a trial where the substantive issues were to be decided – including the true value of the chattels claimed by the Carters to be worth $242,000. [213] The argument concerning the proper interpretation of clause 14.5 of the Lease has a superficial attraction. That interpretation gives the regime in clause 14.5 a wider function. In the context of a 10-year lease, with three five-year options, it extends the compulsory purchase regime to those assets acquired after the commencement of the Lease on 16 April 2002, as well as those listed in the annexed inventory. There are two reasons why that wider interpretation must be rejected. [214] First, such an interpretation is contrary to the natural and ordinary meaning of clause 14.5 and the definition of Chattels in the Lease. Clause 14.5 requires that the landlord must purchase the Chattels from the tenant upon the landlord re-taking possession of the Motel. That compulsory purchase regime is expressly restricted to the ‘Chattels’ as defined. The definition of ‘Chattels’ is similarly clear.145 [215] To adopt the wider interpretation, it would be necessary to read clause 14.5 as if it read: “the Landlord must purchase the Chattels and any moveable furniture, office equipment, chattels and effects owned and used by the Tenant in the operation of the Tenant’s Business from the Tenant upon the Landlord re-taking possession of the Motel [added words underlined].146 Engrafting those additional words into the clause would comprise major surgery. [216] Second, implying those additional words into clause 14.5 does not meet the test for implication of terms.147 The proposed implied words are unlikely to meet the other tests for the implication of terms such as: no term will be implied if the contract is effective without it; it must be so obvious that ‘it goes without saying’.148 [217] And, those additional words are not necessary to give business efficacy to the contract. The Lease could operate satisfactorily without extending the compulsory purchase regime to subsequently acquired property. That is because the tenant did not lose any rights to those items of property that fell outside the compulsory purchase regime. The tenant’s conventional property rights governed property that fell outside the compulsory purchase regime.149 [218] The implication of those additional words is also not a necessary implication because the annexed inventory might well have provided, to give an example, ‘23 electric jugs (as replaced from time to time)’. In other words, it should not be assumed that the 144 For example, each party had the three rights identified in the order. There is no equivalent in clause 14.5. The issue of the status of the valuation is discussed below. 145 That definition is discussed above in Part C. 146 These suggested added words have been adapted from the definition of Chattels in the Lease. 147 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283. 148 Ibid. 149 Subject, though, to being abandoned under clause 17.3. -- 51 of 56 -- 52 annexed inventory was a static document – only specifying the property then being used in the Motel. [219] Incidentally, Mackey Motels contended that the compulsory purchase regime could never have applied to whatever chattels the Carters decided to leave at the Oscar Motel when they left.150 That may be correct, but the contention cannot be taken too far. The evident objective of clause 14.5 is to ensure that, on termination, the Chattels could be promptly paid for and used in the operation of the Motel as a going concern. The parties were free to agree that a reasonable price, assessed by an independent expert valuer, would be paid for the specific goods listed in the annexed inventory, or for the then current electric jugs, bedside lamps, etc. [220] It follows that the order of Boddice J did not impact the substantive rights of the parties or impede Mackey Motels’ arguments. And clause 14.5 of the Lease does not have the extended meaning contended for by the Carters. The Pleaded Case for the Chattels [221] One problem for the Carters is that only one cause of action is pleaded for the value of the chattels at the Motel on termination - that is the claim pursuant to clause 14.5 of the Lease. That pleaded claim is untenable because clause 14.5 requires that Mackey Motels purchase the ‘Chattels’ as defined. As explained above, the Chattels are defined as “the moveable furniture, office equipment, chattels and effects owned and used by the Tenant in the operation of the Tenant’s Business and set out in the annexed inventory…” [emphasis added]. There is no annexed inventory and so there are no items that qualify as ‘Chattels’, as defined. [222] In case I am wrong, and clause 14.5 is engaged, it is necessary to address the valuation of the chattels at the Motel on 5 October 2016. Valuation of the Chattels – Which Chattels? [223] If one ignores the reference to the ‘annexed inventory’ in the definition of ‘Chattels’, the Chattels comprise ‘the moveable furniture, office equipment, chattels and effects owned and used by the Tenant in the operation of the Tenant’s Business’. The reference to ‘moveable furniture’ confirms the general law approach that fixtures and fittings become part of the land. [224] And so, the first issue is: what chattels were at the Motel when the Carters left on 5 October 2016? Neither party particularly focussed on that question, with more focus on the condition of the chattels as at 5 October 2016, and whether the chattels were subsequently utilised by Mackey Motels in the Motel business or in a related business. [225] The Carters sent an invoice to Mackey Motels on 5 October 2016 which simply claimed $242,000 for “Goods and Chattels at the Oscar Motel Property as per insured amount.” When they left Ms Klein-Carter took a large number of photographs of the various rooms of the Motel. The photographs are in evidence, but they were in evidence for two purposes: to illustrate the condition the Motel was left in,151 and to 150 Defendant’s submissions at [388]. 151 The Carters sought to use the photographs to demonstrate that the Motel and its Chattels were left in a good condition, subject to their complaints about ‘capital’ aspects which they contended were the responsibility of Mackey Motels. -- 52 of 56 -- 53 demonstrate that some items in the photographs were subsequently used by Mackey Motels. Neither party sought to extrapolate an inventory from the photographs. [226] Ms Angela Nightingale prepared a report dated 10 October 2016 on the condition of the Motel.152 Ms Nightingale’s report also contained photographs, but that report was directed to the work required to put the Motel into a condition where it could resume trading. Ms Nightingale’s report is not a sound basis for assessing what chattels were or were not in the Motel as at 5 October 2016. [227] On 4 January 2017 the Carters wrote to the solicitors for Mackey Motels asserting that appropriate values for the chattels were the insurance value or the replacement value. They attached a copy of the inventory of the chattels they owned that remained at the Motel on 5 October 2016 - on which they had based their invoice. That inventory appears to have been an updated version of an inventory attached to a contract of sale whereby the Carters purchased the Motel business from the Galeas in 2002. The evidence does not establish that the updated list was based on any actual stocktake or similar inventory process. The quantities for some of the items are described in this manner: “120 minimum” suggesting an estimate. And the updated inventory includes, and at least, some furniture that appears from the photographs to be fixtures. It also includes laid carpeting, signage, air conditioners and TVs and TV wall mounts, some or all of which may be fixtures. No break-up of values is included so that all items in the list appear to be allocated a global value of $242,000. The values attributed to individual items cannot be scrutinised. [228] At least in late 2016 and early 2017, the Carters declined to participate in the appointment of an expert valuer. And so, on 16 January 2017, some three months after the Carters had left, Mr Cameron Johnson, a certified valuer, prepared an expert report on the value of the chattels at the Motel. The report was retrospective to 5 October 2016. That report is in the form of an inventory and attributes market values to each item. Photographs are included as part of the report. The value arrived at by Mr Johnson is $13,450. [229] Some four years later, on 23 April 2021, pursuant to the directions of Boddice J, the parties’ solicitors jointly instructed Mr Baxter, an expert valuer who had been appointed by the President of the Queensland Law Society. It was a difficult brief. The joint instructions explained the plaintiffs’ contentions in 11 paragraphs with references to other materials, and the defendant’s competing contentions in 9 paragraphs with reference to other materials. It is worth noting that this valuation, directed by the order of Boddice J, was not strictly a valuation under clause 14.5 of the Lease. Clause 14.5 specifies that the landlord was to purchase the Chattels “upon the Landlord re-taking possession”. By April 2021 that opportunity of re-taking of possession was long gone. [230] Rather than being a valuation pursuant to clause 14.5, Mr Baxter’s valuation was something of a hybrid. On the one hand, the clause 14.5 procedure was adopted. Mr Baxter was nominated as the expert valuer by the President of the Queensland Law Society – the mechanism in clause 14.5. Mr Baxter had the qualifications specified by clause 14.5(a). And Mr Baxter undertook the task of valuing the chattels in accordance with the valuation methodology specified in clause 14.5(b). On the other hand, the expert valuation was one ordered by Boddice J. The expert report expressly 152 Mackey Motels relied on this report as demonstrating that the Motel was left in a poor state. -- 53 of 56 -- 54 stated that it was carried out pursuant to Part 5 of Chapter 11 of the Uniform Civil Procedure Rules 1999. In that way the report resembled an expert report ordered by the court rather than an expert report prepared pursuant to the Lease. And, in accordance with the order of Boddice J, the parties put to the expert their competing contentions about the inventory and disputed items. That process was quite outside what was envisaged by clause 15.4. [231] By a valuation dated 25 May 2021 Mr Baxter assessed the asset values at $69,205 if the chattels were regarded as being in average condition, and $27,682 if the chattels were regarded as being in poor condition. The report attaches a schedule which assigns a total market value in-situ – in average and in poor condition. The schedule includes laid carpeting, signage, air conditioners and TVs and TV wall mounts, some of which may be fixtures. [232] Curiously, neither party challenged the lists included as part of Mr Johnson’s report or the schedule to Mr Baxter’s report. The Challenge to Mr Baxter’s Valuation [233] The Carters challenge Mr Baxter’s valuation on the following four grounds: (a) It is inconclusive as the (compulsory) purchase price was not determined in accordance with clause 14.5. The expert was persuaded to treat the inventory as being in dispute in its entirety in order to produce two alternative outcomes in the way set out above. (b) Instead of setting out a purchase price of the chattels pursuant to clause 14.5 this is left to be done by another process in respect of the whole of the inventory rather than in respect of a select number of chattels said to be genuinely in dispute as to whether they were in situ and in use as at 5 October 2016. (c) Mr Baxter’s valuation contained manifest errors by treating all items “in a group” and as being 14 years of age despite instructions to the valuer that inventory was updated and replaced from time to time during the relevant period up to 5 October 2016. The valuer accepts that, if the items were not all 14 years of age, the valuation would be higher than $69,205. (d) The expert was not informed, but was actively misled, by the Mackey Motels about chattels in situ as at 5 October 2016 but still in use either at the Oscar Motel or at another property.153 [234] It is necessary to deal with each of those four criticisms. The first criticism of Mr Baxter’s valuation has some force. Mr Baxter was asked to arrive at a value. He arrived at two alternative values. However, it is necessary to understand the context. Mr Baxter was instructed to assess the value of chattels as at 5 October 2016 – some four and a half years previously. He did not inspect the chattels and, even if he had, it may not have assisted because of the time that had elapsed and because some of the chattels may have been replaced. The parties were at loggerheads about the items that comprised the chattels and the condition of the chattels. Mr Baxter’s valuation exercise was impeded by fundamental unresolved disputes of fact. And, there was no real mechanism available to Mr Baxter to resolve the issues as to what was there on 153 Plaintiff’s submissions at [198]. -- 54 of 56 -- 55 5 October 2016, and in what condition. He was not able to inspect the items for himself, or to resolve the disputes, or even investigate the issues.154 [235] Further, the order of Boddice J permitted the expert valuer, so far as necessary or appropriate, to provide alternative values in respect of any chattels in so far as there is a dispute about the items which comprised the chattels as at 5 October 2016. [236] Given that context, it is hardly surprising that Mr Baxter arrived at two alternative values. In fact, the whole regime in clauses 14.5 and 14.6 of the Lease envisages that the parties would attempt to agree on a purchase price and that, if they could not agree, the compulsory purchase will take place promptly, with the chattels being assessed in situ and the Motel operating as a going concern. Mr Baxter’s exercise was an unsuccessful attempt to apply that regime, many years later, in the face of numerous disputes and on-going litigation, and when the condition of the chattels could not be quickly or properly assessed. In those circumstances, it is inappropriate to be critical of Mr Baxter’s approach, particularly when the order of Boddice J contemplated alternative values. Of course, the alternative valuations enabled the parties to contend for either version to be adopted by the court or they could have agreed on the midpoint. [237] The second criticism seems to be that Mr Baxter was obliged to identify those chattels said to be ‘genuinely in dispute’ as to whether they were in situ and in use as at 5 October 2016. I am unable to see why Mr Baxter was obliged to do that, or how it was possible for him to do that. [238] The third criticism looks to be justified. It is difficult to see any basis for assuming that all chattels were 14 years old. The extent to which this error may have affected the valuation is not clear. [239] The fourth criticism is an allegation that Mr Baxter was ‘actively misled’. Despite the serious nature of that allegation, the precise statement said to be misleading is not identified. Presumably, the complaint is that some items, such as chairs and pictures, continued to be used by Mackey Motels in the Oscar Motel and in another business run by Mackey Motels. [240] For the reasons explained above, clause 14.5 was not engaged, and the valuation ordered by Boddice J was not a process conducted pursuant to clause 14.5. However, even if clause 14.5 was engaged, and the process was a clause 14.5 process, the basis of a report under clause 14.5 is that the parties agree that: “The valuer is to act as an expert and not an arbitrator. Neither the Tenant nor the Landlord may dispute in any way that person’s decision.” Those words are plainly intended to inhibit or prohibit a party’s ability to challenge the valuation.155 [241] The alleged discretionary errors of Mr Baxter do not take the valuation outside the terms of clause 14.5.156 [242] Indeed, Mr Baxter faced a challenging task. He was asked in April 2021 to value chattels as at October 2016 where the parties were in dispute about what he was 154 Even trying to resolve the issues by reference to competing photographs. 155 See the discussion of the expression “final and binding” in DTS Succession Pty Ltd v Survco Pty Ltd [2021] QSC 283. 156 Legal and General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 at 335. -- 55 of 56 -- 56 valuing and the condition of what he was valuing. In my view, the Carters faced some difficult hurdles in seeking to establish the actual value of items such as these without a stocktake or inventory which properly recorded the items to be valued and their condition. Some force needs to be given to the evidence of Mr Johnson. He, at least, assessed the chattels within a few months of October 2016. On the basis of Mr Johnson’s evidence and Mr Baxter’s evidence, I would assess the value of the chattels at the lower point of Mr Baxter’s two options, that is $27,682. [243] It is worth noting that the Carters placed a great deal of store on the fact that Mackey Motels continued to use at least some of the chattels at the Oscar Motel and at an associated business. That is undoubtedly true. But the continued use of items, such as pictures, chairs and beds does not invalidate the values attributed to them, or the valuation exercise undertaken by Mr Johnson or Mr Baxter. [244] Underlying the Carters’ approach to this part of their case is the theory that Mackey Motels was saved the expense of replacing the items. Thus, the rationale is that Mackey Motels ought to pay the replacement cost of each item. The problem with that rationale is that replacement value was never contemplated. As clause 14.5 of the Lease records, the expert valuer was to “value the Chattels based on the existing use of the Chattels in situ in the Motel and as a going concern”. The valuer was not required to allocate a replacement or insurance value to each of the chattels. [245] It follows that clause 14.5 was not engaged, and no valuation was conducted pursuant to the compulsory purchase process in clause 14.5. Instead, the court ordered that the parties obtain a joint expert valuation using, at least in part, some of the procedure that had been agreed in the Lease. Pursuant to that process, the evidence favours the view that the market value of the chattels left by the Carters was $27,682. There is, however, no valid claim made in these proceedings for that sum. PART G: CONCLUSIONS [246] It follows that: (a) The plaintiffs’ claims should be dismissed. (b) The defendant is entitled to judgment on the counterclaim in the sum of $7,016.13 plus interest. [247] I will hear the parties on the form of the order and on costs. -- 56 of 56 --